Petrobras – Petroleo Brasileiro S.A. (PBR) (NYSE:PBR) has been so volatile it might make investors sick. Some might be asking whether they’re riding a roller coaster or are long on PBR stock.
While oil prices have been sagging over the past month, there are so many other good stocks to choose from. Given that, why go with PBR, which is not only being decimated from a stock-trading perspective, but also suffering thanks to its location in South America? It’s no secret the iShares MSCI Brazil Index (ETF) (NYSEARCA:EWZ) has been struggling big time this year.
The Brazil-based energy giant is stumbling and really, why invest in that unless you feel quite confident? Bulls who feel like the opportunity is too great to pass up are near make-or-break territory.
Sitting just above $9.50, PBR is perched right on critical support. Below this level and the $8.50 to $9 level is in play. Given that this stock was $17 — $17! — just a month ago, some investors are surely in shock.
The beatdown has taken PBR from overbought to oversold in just a few weeks. We can see that the shares are oversold based on the RSI, (the green circle near the top of the chart). The green circle on the bottom shows the MACD, which measures momentum.
While bearish, it does look like this momentum indicator could be bottoming. An oversold condition, possible bottoming in bearish momentum and PBR sitting right on key support? Sounds like a buying opportunity.
Or does it?
In a market like this I would rather buy breakouts and strength. PBR doesn’t fit either obviously. Given its weakness, I don’t have a ton of confidence that that will be the case any time soon, either.
Support may hold, but why dive into PBR on that hope instead of buying breakouts in strong names like Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) or FedEx Corporation (NYSE:FDX)?
So all in all, PBR stock could hold up in its last stand right here. But if oil prices stay under pressure, I don’t see how it can stand up to the selling.
Sizing Up PBR
Earlier we mentioned GOOGL and FDX, but there’s plenty of other names to choose from. United Parcel Service, Inc. (NYSE:UPS) looks good and so does United States Steel Corporation (NYSE:X). If you’re not into any of those and want to stick to oil and gas, there’s still better choices.
Although Petrobras doesn’t really pay a dividend, it does have growth and is profitable. Analysts are looking for sales growth of almost 10% this year and 7.5% next year. Current estimates call for earnings per share of $1.24 this year, up more than 30% from last year’s result. For next year, forecasts call for additional growth of 15%.
Based on these estimates, PBR stock trades at about 7.5 times this year’s earnings, it’s hardly an expensive figure.
But also consider that it has a string of earnings and revenue misses. Even though it’s boosting assets and cutting down debt, long-term debt still stands at almost $100 billion. That doesn’t include short-term debt and accounts payable, which total almost $10 billion. It has cash and accounts receivable of more $28 billion, so it can cover its costs. But it’s something to be aware of.
The Bottom Line on PBR Stock
The valuation is low, but investors have to consider a lot of factors with an investment in PBR. It’s not a stable environment in Brazil and that does not reflect well on the company’s business. Further, the disruptions in the C-suite do not make PBR stock a stable investment either. That’s clear in the stock going from $14 to $17 and then below $10 in just a month.
For investors who want exposure to energy but don’t want the uncertainty that’s associated with PBR stock, consider some other high-quality energy stocks.
There are options like Pioneer Natural Resources (NYSE:PXD), Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), ConocoPhillips (NYSE:COP) and EOG Resources Inc (NYSE:EOG).
Or consider the Energy Select Sector SPDR (ETF) (NYSEARCA:XLE) or Market Vectors Oil Services ETF (NYSE:OIH). Those will offer a diversified investment in energy. Just beware of PBR stock at this critical price juncture. If it holds, bulls at least have that going for them.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.