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Slider, I agree with your analysis E&P's vs. OSX on a fundamental basis, but you're assuming the market looks at these stocks as rationally as you do. I think the whole energy sector is being ignored by most investors, but especially by the mo-mo guys. When the worm turns and people who have never invested in the energy sector come in, they are just going to be buying the biggest cap, most liquid stocks in the energy universe. While I am invested in the E&P's because of the extreme value offered here, I also think it's dangerous to ignore the OSX stocks because of the prevailing market psychology today. I have thought for the past six months the market would sit up and take notice of the improving earnings of the E&P's, but they have gone nowhere and have actually lagged the drillers despite much better fundamentals. What that tells me is that the market in general regards energy as one monolithic sector and pays little attention to individual fundamentals inside this sector. The most important factors seem to be visibility and liquidity. When this sector starts drawing in non-energy investors, the first companies to benefit will be HAL and SLB, followed by the smaller OSX companies and the drillers. By the time investors are familiar enough with this sector to start making fundamental distinctions, the OSX fundamentals will have caught up with the E&P's and the rising tide lifts all boats theory applies. Longer term, I don't think there are any bad energy stocks to invest in today, I just think the OSX will see the benefit of rotation before the E&P's despite the better fundamental story of the E&P's. Unless market psychology changes abruptly, I think liquidity, visibility, and momentum will override fundamentals here as they have elsewhere in this crazy market. |
