Quehubo, IMO the asset companies deserve to boom. They own something of great value. The service companies need higher day rates not only to increase earnings, but also to offset higher operating costs (because in the world of Greenspan there is no inflation) and commodities that they need to purchase to construct the equipment they use to drill. The bottom line is that the large integrated companies have not jumped in with both feet into drilling. They keep going onto Lybia, Russia, Australia, Brazil, and they have just backed off deep water Mexico because PEMEX will not let them own deep oil.
Now that is not to say the need for their services is not there. It is, but at the same time, it has been there for nearly two years and what do the service companies have to show for it? Lousy earnings in a booming market, in short, IMO. That is also not to say that earnings quality will not improve, but at this stage of the cycle, they are priced to a premium vis-a-vis the E&P companies, IMVHO. They do have more volatility than the E&Ps, but that cuts both ways too. On an enterprise value to any metric, they are rich, rich, rich.
IMO, if I want to own something, I want to own the commodity because at least there is a valuable and consumable hard asset behind it. The rest is just equipment, plain and simple. Considering where the service sector has gone in the last couple of months and the current warm weather in the country (look at today's temps), Robry's forecast for next week looks pretty dismal to me. Personally, I bought some puts and would not buy long unless I saw a pullback of some decent magnitude (that might be a good buy signal!).
The ascent rate of the chart below is also breathtaking and it could well go higher. All else being equal, this could be a good opportunity to short, but if the media and the momentum players are just beginning to catch onto the story, it could have more room to go, in which case it would be best to stand out of the way. Time will judge that outcome but usually when the media start talking about it, the game is over.
Having said that, as you say there are companies that are well positioned to benefit from this environment and I agree with you that NBR and PTEN will do so, along with BHI, IMO. But everything is relative. Relative to one's entry point and the risk-reward profile going forward, relative to the investment objective and its time frame, and to one's tolerance for pain and for staying in the trade, whether profitable or not. And relative to the other valuations in the market as well.
Personally, I sleep much better at night with little market exposure, hence I try to make some option plays without committing a lot of capital. As the trade becomes profitable, I do not mind taking profits as I am not looking for multi-baggers since I like hitting singles.
I hope this helps explain my perspective a little better. The chart below is showing a long term parabolic move. If you draw the support lines underneath the chart, they incrementally get steeper. This rate of ascent is unsustainable because we all know that earnings are not growing that fast over that period of time and that while at this rate it can climb many more points, the more it climbs, the more it will correct, whenever that happens. I plan to try to be liquid enough to take advantage of that opportunity when it comes around.
stockcharts.com[h,a]wacayyay[pc50!c200][vc60][iUb14!Lc20]&pref=G
Best regards, |
