The Zacks Analyst Blog Highlights: Petroleo Brasileiro S.A. or Petrobras, ExxonMobil, PetroChina, Royal Dutch Shell and S&P 500 ETF
CHICAGO, July 6, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Petroleo Brasileiro S.A. or Petrobras (NYSE: PBR), ExxonMobil Corporation (NYSE: XOM), PetroChina Co. Ltd. (NYSE: PTR), Royal Dutch Shell plc (NYSE: RDS.A) and S&P 500 ETF (SPY).
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Here are highlights from Tuesday's Analyst Blog:
Petrobras Expands in Biofuels World
Brazilian state-run energy firm Petroleo Brasileiro S.A. or Petrobras (NYSE: PBR) acquired a 50% stake in a local biodiesel company BSBIOS Industria e Comercio de Biodiesel Sul Brasil S.A. for 200 million Brazilian reals or $128.4 million. Petrobras executed the deal through its subsidiary Petrobras Biocombustível S.A.
Located at Passo Fundo, the acquired company owns a biodiesel facility which is integrated with a vegetable oil extraction unit and has an annual production capacity of 42 million gallons of fuel. The unit is well connected by railroad terminals and a distribution base for smooth delivery and marketing of biodiesel.
This acquisition strengthens Petrobras' position in the domestic biofuels market and takes it a step closer to its target of doubling biofuels output by 2014. The company intends to spend $3.5 billion through 2014 to boost biofuels production to 750,000 cubic meters in 2014, up from 500,000 cubic meters at the end of 2010.
Headquartered in Rio de Janeiro, Petrobras is involved in exploration, exploitation and production of oil from reservoir wells, shale and other rocks, in refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.
We believe that consistent demand growth in Brazil, along with the new investments and acquisitions, will fuel Petrobras' medium-term earnings outlook. Additionally, we expect the company to benefit from its proficiency in alternative energy resources application, recent major discoveries and the growing domestic refined products market.
However, we maintain a long-term Neutral rating, considering the volatile macro backdrop, project cost overruns and operational hindrances. Petrobras faces strong competition from its peers such as ExxonMobil Corporation (NYSE: XOM), PetroChina Co. Ltd. (NYSE: PTR) and Royal Dutch Shell plc (NYSE: RDS.A).
Bumping Heads on the Debt Ceiling?
In the end, I find it almost impossible to imagine the debt ceiling not being either raised or ignored. The most likely scenario, and the one that the markets are clearly betting on, is that there will be a last-minute settlement.
...But What If...?
The chance of this game of chicken having a tragic ending is no longer trivial. That tragic ending would result in a huge market crash.
Taking out some insurance would make a lot of sense in here. My preferred way of doing so would be to buy some out of the money September puts. On the the S&P 500 ETF (SPY) the September 120 puts are only trading for $0.89. Obviously I hope that they would expire worthless, just as I hope that my life insurance policy does not pay off anytime soon. Still, it is insurance that would be well worth having.
On balance I remain bullish, and I think we will end the year with the S&P 500 north of 1400, but that does not mean we will have a smooth ride between here and there. Strong earnings should trump a dicey international situation and the drama in DC (provided it turns out to be just drama, and the game of chicken does not end in tragedy).
Valuations on stocks look very compelling, with the S&P trading from just 13.55x 2011, and 11.93x 2012 earnings. That is extremely competitive with the 3.18% yield on the 10-year Treasury note. However, be prepared to move to the exits (or have some put protection in place) if it looks like the debt ceiling will not be raised.
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