Brazil Stocks Gain on Petrobras Outlook, UBS Picks; Ipsa Falls

By Paulo Winterstein

Dec. 3 (Bloomberg) -- Brazilian stocks rose for a second day, led by Petroleo Brasileiro SA, after UBS AG said “resilient” growth and undervalued shares make the country its favorite market in Latin America.

Petrobras, as the Rio de Janeiro-based company is known, surged 5.5 percent as analysts said its pre-salt oil business is still profitable with prices between $40 and $50 a barrel. Net Servicos de Comunicacao SA rose to the highest in a month after UBS strategist Damian Fraser cited it as one of his top picks and said Brazil’s economy may expand faster than estimated. Tam SA, the country’s biggest airline, advanced as oil traded at a three-year low.

Petrobras “is trading at a big discount relative to its potential for growth,” said Marco Saravalle, analyst at Coinvalores in Sao Paulo. “Investors buying Petrobras aren’t buying Petrobras for this year, but for 2015.”

The Bovespa increased 295.86, or 0.9 percent, to 35,296.70, rebounding from a drop of as much as 3.4 percent. The BM&FBovespa Small Cap index fell 0.8 percent, and the BM&FBovespa MidLarge Cap index advanced 1.4 percent. Mexico’s Bolsa gained 1.6 percent and Chile’s Ipsa index dropped 0.8 percent. The MSCI Emerging Markets Index fell 0.3 percent.

Petrobras jumped 1.20 reais to 19.31 and accounted for most of the Bovespa’s gains. The state-controlled company, which discovered the Western Hemisphere’s largest oil find in three decades, “should be able to reach breakeven below $40 a barrel and provide economically satisfactory returns at approximately $50 a barrel,” Merrill Lynch & Co. analyst Frank McGann said in a note, referring to production from the company’s pre-salt oil fields.

UBS Picks

Petrobras is among the top 10 Latin American stock picks from UBS’s Fraser. He cited his preference for “large-cap, underleveraged, cash-generating sector leaders.”

Brazil “has the lowest valuations in the region (even sector adjusted), good chances of growing 2.5 percent or more, and very high interest rates give the central bank a cushion if growth surprises on the downside,” Fraser wrote.

Net, Brazil’s biggest cable-TV company and also listed among Fraser’s top picks, gained 6.3 percent to 14.01 reais.

Tam, Brazil’s biggest airline, rose 5.3 percent to 18.58 reais as oil dropped. An Energy Department report showed that U.S. refineries curbed operating rates as the recession crimps fuel demand. Crude for January delivery retreated 0.4 percent to $46.79 a barrel in New York, the lowest settlement since February 2005.

Empresa Brasileira de Aeronautica SA, the world’s fourth- largest airplane maker, added 6.7 percent to 9.50 reais.

Tim Slumps

Tim Participacoes SA voting shares slumped 6.2 percent to 6.10 reais, the lowest in a week. Telecom Italia said today it counts on its Brazilian unit to help foster earnings growth. Il Sole 24 Ore newspaper reported Nov. 26 that Telecom Italia may sell Tim, Brazil’s third-largest mobile-phone company, sending shares up 27 percent in two days.

Separately, Tim said in a regulatory filing today that revenue will grow at a slower pace for four years. Annual sales will probably increase 8 percent on average through 2011, compared with 23 percent last year, the company said.

Mexico’s Bolsa gained 1.7 percent before trading was halted at 3:35 p.m. New York time because of a technical glitch. Trading won’t resume today, Bolsa Mexicana de Valores SAB, the operator of the stock exchange, said in an e-mailed statement.

Cemex SAB, North America’s biggest cement maker, rallied 3.6 percent to 9.15 pesos. U.S. mortgage applications surged by a record last week as lending rates plunged following the Federal Reserve’s pledge to buy more mortgage-backed debt.

Chile’s Ipsa fell for a fourth day, losing 0.6 percent. The central bank kept the benchmark lending rate unchanged at 8.25 percent for a second month. Policy makers said “October’s inflation continues to be an important problem facing the Chilean economy.”

To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net