There’s a type of stock that’s higher up the food chain...and one that most investors know nothing about
Today, I’m going reveal a secret Wall Street doesn’t want you to know about.
I’m also going to show you how to use this secret to pick up “free” shares of one of the most promising emerging market stocks in the world today.
First the secret…
When most individual investors buy stocks, what they’re really buying are “common stocks.”
But there’s another type of stock. One that’s higher up the food chain. And one that most investors know nothing about.
Wall Street types call these shares “prefs.” It’s shorthand for “preferred stock.”
Prefs are not as volatile as common stock. That means they are less likely to deliver spectacular growth. But they are less likely to fall in value, too.
Also, prefs usually pay a higher dividend than common stock. So what you lack in growth, you make up for in income.
Unlike common stock, investors don’t get a vote at company meetings. But for individual investors—you and me—votes are irrelevant. The big boys dominate the voting.
Also, if a company goes bust, pref holders get any money left over before common stock holders. So not only do prefs pay a fixed dividend yield, they are also safer than common stocks.
Now the play…
You can use this secret to get shares of Petroleo Brasiliero (Petrobras) (NYSE:PBR), Brazil’s oil and gas giant and the world’s sixth-largest company, for free.
You see, you can buy prefs in Petrobras for less than the company’s common stock. I had a look going back to late 2003. And this discount ranged between 5% and 22%.
Today, Petrobras common shares (NYSE:PBR) trade for $35.46 in New York. Petrobras preferred shares (NYSE:PBR-A) trade for $31.04.
That’s just over a 12% discount. That’s the same as “buy eight, get one free.”
The price-to-earnings ratio (P/E) of Petrobras is eight times last year’s earnings. That means you’re paying just $8 for every $1 dollar of Petrobras’s current earnings. (Or less than half what you’d have to pay for a “hot” stock such as Apple’s earnings.)
That’s an attractive valuation for a company that recently made an offshore oil discovery that may be the biggest since Mexico’s Cantarell field in 1976.
Shares in Petrobras are down 23% since December 2009. This is a great opportunity to buy the world’s fourth-largest oil producer…and a rock solid company…at a steep discount.
