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2 Foreign Oil Stocks to Buy Going Into December

- By Jonathan Poland

Sometimes, an investment just goes the other way on you, such as PG&E Corp. (PCG) for Seth Klarman (Trades, Portfolio), Herbalife (HLF) for Bill Ackman (Trades, Portfolio) or Apple (AAPL) for Warren Buffett (Trades, Portfolio). Even the best money managers in the world make mistakes. Many have been shook by the short-term volatility across the oil and gas market.

That being said, anyone counting out oil and gas long term is making the same mistake. In fact, what if the riff between the U.S. and OPEC was just a back door deal to lower the price of oil? I'm not saying that's what it is, and by no means am I a conspiracy theorist, yet some of the political posturing seems to have ulterior motives. All investors can do is buy intelligently and wait it out, because we haven't seen peak oil prices just yet.



CNOOC is China's main offshore oil and gas exploration and production company and since Oct. 1, its stock is down 23%. China's appetite for oil and gas means that CNOOC, one of its largest companies, will continue to benefit. Its Chinese assets make up 65% of production, which averages over 1.3 million barrels per day (84% oil) with proven reserves of 4.31 billion barrels of oil equivalent (boe).

The company's production is down slightly in 2018 due to Typhoon Manghkut, but costs are still low at $31.83 per barrel. At the current yuan (CNY) to dollar (USD) exchange rate, the company is still expected to earn over $21 a share in 2019. And, with a 4.45% dividend, investors are getting paid pretty well to wait for the overall industry to rebound.


Petrobras (PBR)

Petrobras, one of Brazil's largest integrated energy company is controlled by the country's government. The run is not over in this stock, which has already seen a rebound thanks to righting the ship from what some called the biggest corruption scandal in history, which sent shares down below $5.00.

Brazil, as a nation, has been facing its own political and economic challenges, and its currency remains depressed at 26 cents per real (BRL). That being said, the company announced net income of more than $6.2 billion in its latest quarter, which included the settlement charges.

The company's 12 refineries have the capacity to produce over 2.2 million barrels a day, and the company has proven reserves of 9.8 billion boe, mostly (86%) oil, twice that of CNOOC. But Petrobras is only priced 30% higher by the market.

There is plenty of room for both stocks to run. Analysts expect Petrobras to earn between $1.56 and $4.60 per share in 2019, the median falling around $2.42. It doesn't take a math wizard to know it is worth the risk, especially with all the bad news behind the company. If production, price or currency ever got back to 2008 to 2011 levels, when its income was north of $20 billion, the company's value would triple.

Disclosure: I am not long/short CEO or PBR.

This article first appeared on GuruFocus.