Petrobras Is The Best Company To Buy Stocks In 2019, Surpassing Vale, Says JPMorgan

For Investors Looking to Enter the Stock Boom in Brazil Through Commodity Titans Vale or Petrobras, JPMorgan Has Some Ideas on the Best Bet.

The bank examined production growth, costs, capital expenditures, profitability, free cash flow, valuation, and outlook for commodities. Its conclusion: Giant Oil Company Petroleo Brasileiro SA is the most attractive option for stock pickers. While Vale SA, the world’s largest iron ore producer, benefits from higher profitability and an attractive valuation, Petrobras has a more compelling structural case, according to JPMorgan analysts Rodolfo Angele and Ricardo Rezende, in a report from January 22.

The analysts noted Petrobras’s shift to loosen its operational ties with the state over the past three years, amid the new decision by CEO Roberto Castello Branco to oust the last senior executives appointed during the Workers’ Party governments. Additionally, Castello Branco promised to increase oil production, reduce debt, and continue with the company’s divestment program.

JPMorgan also sees potential gains from asset sales and a bill in the Brazilian Congress that would allow Petrobras to sell offshore oil reserves to other drillers. The bank expects production to reach this year, boosting free cash flow and helping the company to deleverage.

JPMorgan has buy recommendations for American depositary receipts of Vale and Petrobras, and prefers Petrobras’s preferred shares over ordinary shares.