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The U.S. equities markets have taken a beating recently. Nearly every stock has gone down, especially big emerging market oil companies. These have gone down even more than their US counterparts due to the overall movement away from emerging markets in troubled times. These are the kind of low Beta and good dividend stocks that a conservative investor will buy in troubled times. The continuing long-term uptrend in oil is a well known secular growth story. China is now the largest new car auto market. It seems almost inevitable that it will soon be the biggest oil consumer, and it is far from the only emerging market oil demand increase story. China has 1.34B people. It uses 8.2 million bopd. This is about 2.23 barrels of oil per person per year. By contrast the U.S. has a population of approximately 0.31B, but it uses 18.69 million bopd. This is about 21.86 barrels of oil per person per year. The comparison to India is even worse. It uses only 0.89 barrels of oil per person per year. It is easy to see that the world demand for oil will go up dramatically as the emerging economies emerge. China is already the world’s second largest economy. If China and India start using closer to 5 barrels of oil per person per year the current oil demand will grow from 11.18 bopd to approximately 34.35 million barrels of oil per day. Just these two countries use of less than 25% of the U.S. usage per person would increase world oil demand by over 23 million bopd. The above is without even considering the rest of the world’s emerging market economies. Everyone wants more oil -- as cheaply as possible. Longer term the price of oil will go up, even if it falls a bit in the near term. This last is by no means certain. Oil demand is already near peak oil, and speculation seems to more than make up for any lack. The EIA short-term oil price outlook chart (click to enlarge) is below.



Three big, stable oil companies that fit this description are LUKOIL Oil Company (OTCPK:LUKOY), Petroleo Brasileiro (NYSE:PBR) (also know as Petrobras), and Petrobras Argentina S.A. (NYSE:PZE). Not only do these companies have huge production already, but they are participating in many of the most prolific new fields, especially Petrobras. When these companies are beaten down, as they are now, they provide opportunity for good long-term growth as well as good dividend returns. In fact the dividends of these stocks are perhaps even more secure than those of US companies. They are a standard way for emerging market company owners and executives to pay themselves without being accused of “stealing from the people.”

The analysts’ current projected one year stock price growth for each of these stocks is: LUKOY.PK = 57%, PBR = 33%, and PZE = 32%. PBR has some of the best new development oil fields in the world (with the possibility of many more). It essentially gets first crack at all of the offshore Brazilian oil, which is considerable. It should trade at a much higher multiple. There are continual threats from politicians of the Brazilian government that want the “people” to take over PBR (take its profits), but such a move by the government would be international political suicide for Brazilian businesses. It is unlikely to happen. Brazil is very conscious of its new status as a major world economy. Brazil would be foolish to jeopardize this.

The fundamental financial data for these stocks is in the table below. The data are from TDameritrade and Yahoo Finance.

Stock

OTCPK:LUKOY

PBR

PZE

Price

$50.20

$24.00

$14.81

1 yr Analysts’ Target price

$78.62

$32.00 (S&P)

$19.56

Predicted % Gain

57%

33%

32%

PE

3.87

6.53

6.61

FPE

3.84

N/A

6.38

Avg. Analysts’ Opinion

1.8

3.0

3.3

EPS % Growth Estimate for 2011

20.70%

N/A

7.10%

EPS % Growth Estimate for 2012

-1.10%

N/A

40.60%

5 yr. EPS Growth Estimate per annum

-0.60%

N/A

19.80%

Market Cap

$39.22B

$155.53B

$1.50B

Enterprise Value

$47.43B

$193.23B

$1.92B

Beta

N/A

1.33

0.50

Total Cash per share (mrq)

$3.43

$4.91

$5.13

Price/Book

0.60

0.99

0.62

Price/Cash Flow

2.62

4.45

3.64

Short Interest as a % of Float

--

0.28%

0.32%

Total Debt/Total Capital (mrq)

14.16%

28.22%

33.58%

Quick Ratio (mrq)

1.38

1.58

1.31

Interest Coverage (mrq)

77.75

--

--

Return on Equity (ttm)

19.15%

19.97%

6.24%

EPS Growth (mrq)

77.29%

5.31%

99.26%

EPS Growth (ttm)

61.16%

0.36%

-34.09%

Revenue Growth (mrq)

35.04%

28.98%

7.13%

Revenue Growth (ttm)

24.76%

22.36%

20.63%

Annual Dividend Rate

$3.72 (7.41%)

$1.24 (5.17%)

$0.4445 (3.00%)

Gross Profit Margin (ttm)

40.50%

39.40%

25.18%

Operating Profit Margin (ttm)

11.70%

19.58%

9.98%

Net Profit Margin (ttm)

9.74%

18.29%

4.42%


The above stocks all look solid. However, growth projections are not always available. PZE is a small cap, not a large cap. However, the data indicate that it has great growth and stability for a small cap with a Beta of 0.50 and a 5-year EPS Growth Estimate per annum of 19.80%. PZE has the best growth rate, but the lowest dividend. LUKOIL has a great dividend at 7.41%, but it has much lower growth. Still if you are looking for safety, the 7.41% dividend is something a lot of people would like to collect. Plus the analysts predict a 1-year price appreciation of 57%, which seems highly reasonable for a stock with a 3.87 PE and a 3.84 FPE. That appreciation would only make the PE 6.08. This does seem to be a good time to buy, unless you are really expecting Armageddon. I am not.

The 2-year charts may provide some technical direction for any trading decisions.

The two year chart of LUKOY.PK is below - (click charts to enlarge):



The two-year chart of PBR is below:



The two-year chart of PZE is below:



The slow stochastic sub chart of each of the stocks shows each as oversold. Each is at or below its lower Bollinger band. Each is far below its 200-day SMA. Each is at a strong level of support. Yes, any or all of them could go down further. However, the financial fundamentals and the technical data above indicate these stocks are much more likely to rally from here. At worst they should rally soon. Plus each would pay you a good dividend to wait for a rally. If you are thinking they should sell off more and faster than US equities, you should remember that the South American and Russian markets are already in a bear market. They have already sold off more and faster than the US markets. You might also consider that many prominent market strategists have called for a market rally. Doug Kass, who called the 2009 bottom, thinks this is a bottom too based on valuations being so low. Art Cashin of UBS has called for a rally. This list is much longer.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OTCPK:LUKOY, PZE over the next 72 hours.