Brazil’s Petrobras: A Buying Opportunity?

“I like Brazil as a contrarian value play even though there is a lot of headline risk associated with the country,” he said. “There’s no doubt it’s a country with a lot of problems but its stocks are very cheap right now and you’ve got to believe that at some point, the bad news will all be priced in.”

Eric Linser, an independent wealth advisor at Avant-Garde Advisors in San Francisco, has owned Petrobras in the past and even now, he’s looking at the company as a potentially interesting investment. However, “I think it’s premature to invest in the company and I would need to see some catalysts that there is true reform underway, away from the governmental ties of the company’s history ultimately leading to the corruption we’ve witnessed,” Linser said. He compares Petrobras to Pemex, Mexico’s state-owned oil company, which, he believes, shows better metrics for investment. Pemex has benefited from the energy reform in Mexico that has opened the sector up to private investment, domestic as well as international, in the hopes of beefing up Mexico’s lagging oil and gas production. With a reform-minded president in charge, Mexico is also a strong market overall, and “I believe that Mexico’s stock index will outperform that of Brazil’s in 2015, Linser said.

“Until I see true reform and a move to capitalism and away from socialism, I’m on the sidelines for Brazilian investment, even if there are always a few companies that can overcome the hard times and do well, and for that I will continue to invest in Brazilian companies opportunistically,” he said.

For Petrobras, fresh investment, foreign direct investment in particular, is an urgent and pressing imperative, since the company’s biggest oil reserves are located in expensive and hard-to-explore offshore fields, which would be a problem even without the corruption scandal, Sizemore said. It does not look as though the scandal will be cleared up anytime soon, so with the company still closely linked to the Brazilian government, “I’m not sure any foreign oil company wants to partner with them,” he said. “Petrobras is a mid-sized oil company and yet it has one of the highest debt burdens of any oil company in the world.”