I agree, but FLC was leveraged going into the downturn which is why Paul Loyd fired his best friend Steve Webster as CEO. I used to work with Steve and Paul many years ago back when they were called Jones, Loyd and Webster. The Jones had no brains, he went to become a CEO of a gold mining company in Canada. Their other partner, Herb Williams, (Herbie as I called him) went on to be CFO of Seven Seas (no brains either). Steve went on to be CEO of Falcon Drilling. Paul went back to the very first job he had when he graduated from Harvard Business School, Reading & Bates (they paid for his Harvard education), and the rest is history.
FLC is still a laggard, because when it was at 5 5/8 it was telling you that it may not survive.
One of the hardest thing to do is to not take profits after the run up we have had in oil and gas stocks, but you have to keep in mind that we were at all time historical lows in the E & P stocks and are now still at the low end of what is deemed to be a normal valuation. Analysis are still using $22-25.00 oil and $2.50-3.00 NG in their evaluation models. Near the end of the cycle you will see valuations that are hard to imagine today, using both higher pricing and higher cash flow multiples. Service stocks will be priced off of replacement value of their equipment. If KEG were to price their hourly rig rates off of the replacement value of their rigs today, their revenues would exceed a billion dollars a year.
JQP was right in not selling his oil and gas stocks to soon, although if you bought service laggards, I would guess it would be about a push.
My philosophy is to take your losses quickly and let your profits run. There is a lot of new money coming in the patch, and with today's oil and gas prices, I don't believe we are going to get the 50% OSX pull backs that we got early in the cycle. Funds are starting to increase their sector allocation to oil and gas, and new funds are starting to flow into the oil and gas funds. There is still a lot of money on the side lines, and we have not seen that much rotation from the tech sector.
As far as the OPEC meeting is concerned, a. we have much higher NG prices, b. OPEC passed a price band at the last meeting which people are starting to believe in and c. the believe is starting to spread that at the current rate of growth in oil demand, OPEC will not have enough oil to meet demand in the very near future.
I believe we will have a capitulation in the NAZ before it is all over, but I'm not that sure we will see it drag the oil and gas stocks down for more than a day or two if at all in this environment.
It would be nice to be able to take profits and rotate them into the tech and financial sectors when NAZ is at 2,800-3,200, and I believe it will happen.
My last words for the evening are "buy on the dips"
Jim |
