Brandywine Global sees value in energy
NEW YORK (Reuters) - Global demand for energy is likely to keep up while supply lags, making energy-related stocks an area of interest for investors in Latin America, a money manager at Brandywine Global Investment Management LLC said on Wednesday.
Sean Bogda said that the ratios of price to book value, which measures a company's total net assets, is not high for energy-related companies, making the sector attractive.
"I think there's a strong argument for the energy services companies, as well as those companies that have strong production growth going forward and have some very good assets on the oil, exploration and production side," Bogda said at the Reuters Latin America Investment Summit
"We're finding some interesting companies across the board, globally as well as in Latin America, that fit our criteria," said Bogda, who helps manage about $500 million in emerging markets assets at Brandywine, which oversees about $40 billion overall.
Bogda said Taiwan and Korea may offer better opportunities at the moment because of future potential upside to stock prices than do the big Latin American markets of Brazil, Chile and Mexico.
Latin America's major stock market indexes have been some of the world's biggest gainers in the past three years, leading investors to wonder how much upside there is in the future.
Bogda said Brazil's economic growth looked good and that, with its interest rates likely to fall further, stocks that are trading at 10 times forward earnings are not expensive.
"I don't think there's a tremendous amount of downside risk in the market," he said. But "I don't think there are out-sized
returns being offered."
With the Mexican mortgage market booming and demand for housing in Mexico strong, Mexican home builders could still offer upside for investors, Bogda said.
Ethanol, in the spotlight as an alternative source of energy after U.S. President George W. Bush's recent swing through Latin America, has some hurdles to overcome in the United States, including political opposition and questions about distribution and engine wear.
There are also other alternative sources that hold potential, he said. "What the end solution will be, I don't know. But it seems we're moving to other fuel sources over time. It's going to take some time to get there."
Mexico is rethinking the state-controlled energy sector because of declining energy production and a shortage of investment needed to produce more, Bogda said.
Bogda made clear he has no information to suggest some form of production-sharing agreements with Big Oil but said that, considering the outlook for Mexican energy production, something may happen in the next couple of years.
"I don't think it's out of the realm of possibilities of seeing Pemex teaming up with some of the oil majors. Not necessarily a merger or anything like that, but working along with some of the oil majors to co-develop regions within the Gulf of Mexico."
