Roseman's ADR Values

07/16/2004 12:00 am EST


Eric Roseman

Editor, The Commodity Trend Alert

Eric Naimer-Roseman, editor of Commodity Trend Alert , looks globally for equities that are poised to benefit from rising commodity prices. Here, the advisor looks at a Brazilian oil firm and an Australian aluminum play-both available on the NYSE as ADRs.

"Petroleo Brasileiro SA (PBR NYSE), Brazil's largest oil company, is an amazing bargain. Known as Petrobas, this firm has a market-cap of $17.1 billion and an incredible 60.4% return on equity over the last 12 months. It is a world-class company that controls a whopping 88% of the Brazilian energy market. I love oil as a long-term investment. No other commodity has a better supply and demand imbalance. The Chinese are consuming record amounts of crude and US Strategic Petroleum Reserves remain near all-time lows. You can't have a better bullish scenario than that for oil. What is really irresistible about Petrobras is just how cheap this oil company is. Indeed, Petrobras is a pure value stock. The company has 29% of its stock market-capitalization in cash and trades at just 5.5 times trailing earnings. Plus, investors get a nice dividend of $0.85 cents per share based on the latest 12-month payout, or 3.15% per annum. Overall, the Brazilian market has been smashed this year, unfairly punishing Petrobras. This is the world's cheapest-priced oil company based on price-to-earnings, book-value, and cash-flows. In my book, that's a great long-term investment as well as a superb trading play. We'd also note that for options traders, we like the  January 2005 30 Petrobras Calls .

"In addition, I've got an incredible base metals investment for you, based on a commodity that is at the cusp of a major advance. There is no doubt in my mind that aluminum is the cheapest base metal right now. Aluminum is a wonder metal. It's mostly used for aerospace, packaging, autos, railroad cars, and recycling. Meanwhile, China, a major consumer of aluminum, has been hoarding the metal, while London Metals Exchange aluminum inventories are at six-month lows. This is almost a replay of what's been happening in the US with crude oil. When supply for a commodity is reduced and demand remains constant or increases, a major bull market develops. I believe the best way to play this rally is with Australia's Alumina Limited (AWC NYSE), a $4.6 billion dollar company. Alumina Ltd. is a partner with Alcoa in refining, smelting, and marketing alumina products worldwide since 1994.  Alumina, continues to produce solid earnings and an impressive return on equity. These margins will only become more profitable over the next 12 months as spot aluminum prices rally and possibly, explode higher. The stock tanked earlier this winter, mainly because of a correction in base metals prices and a weaker Australian dollar. Both events are now history. The stock pays a nice 3.5% dividend yield. Buy up to $18. Aluminum is cheap, and should be the next base metal to fly. Get in now. This has all the ingredients for a great investment."

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