From reading Solomon's research alert, one can only wonder if PB is about to take a plunge, since (apparently) its bubble is about to burst at any time. On the other hand, everyone seems to be aiming for a mid-40s price by the summer of '98. Are Solomon's comments well founded? Should we sell all our PB and buy Telebras ???
Saloman's report was a bit vague for my taste, it wasn't clear how severe the discrepancies were, how they were supposed to have happened, or whether there were innocuous (or even positive) reasons for the discrepancies.
While I can see how ADR situations could easily get out of whack, I have trouble seeing how PB gets out of whack since it is only traded on the NYSE, not as an ADR. I do know that they indicated, in their news conference last fall, that they would defend their stock price against speculators and short term fluctuations driven by irrelevant new stories (e.g., Asia's financial woes, and Mr. Clinton's troubles with his zipper and his statments). That may have something to do with the discrepancy Saloman observed. Additionally, the buyback of some of the minority interests should also have enhanced the stock price. Neither of these would concern me...indeed, both are positive and represent reasons to buy, not to sell.
I can neither recommend nor contra-recommend Telebras; it could be a good deal, it's near a low point and has a good P/E. But, personally, I'm uncomfortable with some of these developing country para-statal utilities, including Telebras. In my opinion, it is a fairly large, clumsy, bloated organization analogous to AT&T before the breakup. Without serious telecom reform in Brazil, they don't have the competitive pressure and incentive to introduce the new products and services that would allow them to capitalize on their position. And if serious telecom reform does come, will they be best positioned to take advantage of it, or would some Brazilian MCI be a better bet; would the aging dinosaur be able to reinvent itself?
Additionally, I'm still not too confident about the Brazilian economy. PB's exposure to Brazil is high, but Telebras' is, of course, much more significant; TBR is a good "bellweather" stock, if you're interested in that, but I don't know anything about the company's growth rates or reinvestment rates (PB's rates definitely justify its P/E, by the way).
I've seen analyst forecasts in the 40-47 range. But I'd say they are talking about late 98 or early 99. I think there will be trouble sustaining prices above 40 by summer, just as I think prices below 30 will not be sustainable, either. Like much of the market, we may be entering a trading range until we've figured out what Bill and Asia are doing.