Is Petroleo Brasileiro Petrobras SA (ADR) (PBR) A Good Stock to Buy?

Petroleo Brasileiro Petrobras SA (NYSE:PBR) has dived in the last year, with shares falling 36%. Macro conditions in Brazil have not been particularly strong and some investors have begun to worry about political risk attached to the integrated oil, gas, and energy company. In addition, oil prices- while high in historical terms- are not as high as they were some time ago, reducing the potential profitability of drilling in Brazil’s “ultra deepwater” fields. Of course, oil majors in general have not had a particularly good year but even when we look at BP plc (ADR) (NYSE:BP) we see a stronger market performance.

In the fourth quarter of 2012 Petrobras reported a 13% increase in revenue versus a year earlier, with earnings rising 53%. As a result the company narrowly beat Street expectations on the bottom line after two consecutive quarters of large misses. Earnings per share have been quite volatile, so we would not necessarily expect this trend to continue, but it is worth noting. The market capitalization of about $110 billion places Petrobras at 11 times trailing earnings, which is perhaps a bit higher than many of its peers, but higher growth expectations give the stock a forward P/E of only 7 and a five-year PEG ratio of 0.6.

Several weeks after the end of each quarter, hedge funds and other major investors file 13Fs with the SEC to disclose many of their long equity positions. We use this information not only to help develop investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by 18 percentage points per year) but also to see how top managers have been trading particular stocks. Billionaire Ken Fisher’s Fisher Asset Management sold some of its stake in Petroleo Brasileiro Petrobras SA (NYSE:PBR) last quarter but still reported a position of close to 13 million shares at the end of December (see Fisher’s stock picks). SAC Capital Advisors, managed by billionaire Steve Cohen, increased its holdings to a total of 6.6 million shares (find Cohen’s favorite stocks).