Trends say play Companhia Paranaense de Energia

Forget what you think you know, this Bear market is killing everything.  What isn't it killing?  Brazil and Energy stocks.  For a combo of both, turn to Companhia Paranaense de Energia (ADR) (NYSE:ELP), better known as Copel.

ELP operates in the Brazilian state of Paraná, as well as in Argentina, Chile, China, Colombia, Malaysia and Paraguay.  Just so happens that Copel is the largest company in Paraná; it has 3.38 million consumers, covering virtually 100% of homes in urban areas and 90%, in rural areas.

Connected consumers include 2.6 million homes, 58,000 industries, 281,000 commercial establishments and 331,000 rural properties. Copel makes an average of 70,000 new connections every year. 

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Copel owns 17 hydroelectric and one thermoelectric power plants. Through Companhia its subsidiaries, Copel is principally engaged in the distribution, generation, transmission and commercialization of electric energy for residential, industrial, commercial and rural consumption, among others. They also have their hand in providing telecommunications and consulting services.

For Wall Street, Copel is the right company at the right time, the chart says it all:

Zacks.com has a Buy rating on Copel as of June 20th, here's their view:

The company's first quarter results were positive, the short-term outlook is also positive and the Brazilian business environment remains encouraging.

Additionally, energy consumption in Brazil is still heated, and the short-to-medium-term outlook is very encouraging. Moreover, becoming a part of the São Paulo Stock Exchange's Level 1 of Corporate Governance will enhance the positive aspects of the company. Finally, COPEL shares are trading at an attractive valuation.

COPEL has a strong balance sheet with a net debt of R$ 408.6 million. Additionally, ANEEL (Brazilian Government Agency for electric utilities) has proposed a tariff reduction for COPEL of 3.66% on average, starting June 24. Tariff correction for 2009 is expected to be very high since correction will be made on the basis of the IGP (Brazilian PPI) which is expected to reach at least 10% in 2008. The continued investments in new-generation plants will help to increase revenues and improve margins.

Presently, COPEL is trading at a P/E of 9.2x our 2008 estimated earnings. We believe the company's valuation looks highly attractive when compared to other international electric utilities and the industry mean of 17.4x. Also, the Brazilian economic plans for increasing investments in the electric energy sector are positive signs for COPEL.

All considered, we still think there is a reasonable upside potential for the stock in the short term, and the company should trade closer to the BOVESPA's (Brazilian benchmark) average. Our target price assumes a P/E of 11.5x 2008 EPADR estimate, close to the company s historical standards and the BOVESPA's average. Our target price is US$24.00.

There's not a ton of press on Copel, not yet anyway.  The Masters would rather not fight the momentum of the market, and ELP has the right stuff for the time being.  Copel shares are up 10% in the last month alone, and up 32% YTD.

Copel reports Q2 2008 earnings on August 13th and as you can imagine, expectations are high.  Between now and then, maybe a little Copel isn't such a bad thing for your portfolio.

DISCLAIMER: No positions in ELP.