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Why you should be hunting for emerging market oil stocks right now

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The oil industry is becoming a happy hunting ground for emerging market investors as stocks like Brazil's Petrobras ( PBR , quote ) and Sinopec Shanghai Petrochemical Co ( SHI , quote ) continue to slide.

[caption align="alignright" caption="The first 100% Brazilian oil platform, the P-51 produces about 180 thousand barrels of oil and 6 million cubic meters of gas per day when operating at full load."] Image courtesy Agência Brasil: http://commons.wikimedia.org/wiki/File:Oil_platform_P-51_%28Brazil%29.jpg [/caption]

Value investors can't do much better than oil right now. Sinopec is trading at a price-to-book ratio of 0.84, while the price-to-book ratio for Petrobras is 0.78. That means that each company has a share price under the market value of its assets. Their price-to-sales ratios are equally appealing at 0.17 for Sinopec and 0.93 for Petrobras.

Income investors will like the high dividend payouts for Sinopec and Petrobras, which are both near 5%. Both companies have a low dividend payout ratio, with enough cash flow to raise the dividend or initiate share buyback programs.

Compare these figures with Exxon Mobil ( XOM , quote ), which has a price-to-book ratio of 2.55 and a 2.55% dividend yield.

Sinopec and Petrobras also have excellent growth prospects. PBR is trading close to its 52-week low, with a price-to-earnings ratio of 6.79. SHI is in a similar position with a price-to-earnings ratio of 15.

It is a very bearish climate for oil stocks. Inventories are high and demand is low. That's when emerging market investors should be getting bullish, and when stocks like Petrobras and Sinopec are at their most attractive.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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