To All:
Another bullish article from TheStreet.com on drillers. I agree with those that think that this sell-off in the drillers and oil services companies is overdone and offers a great buying opportunity. Damn, I wish I had some more cash to average down!
I sincerely hope reading this article helps those seeing their oil stocks plummeting over the past few days (as I have) keep their faith and focus on the fundamentals of these companies.
Top Stories: Drillers Feel the Pain, But Fundamentals Remain Solid
By Mavis Scanlon
Staff Reporter
11/19/97 9:43 AM ET
For the drillers, the good times have become the choppy times. On Tuesday more damage befell the group. Major stocks in the sector dropped between 2% and 9% on a combination of worries about commodity price volatility and profit-taking. The Philadelphia Stock Exchange Oil Services Index (OSX) fell 7.00, or 5.5%, to 120.98.
Describing Tuesday's drops in the oil patch as "carnage" seems on the strong side, but when buy-side analysts speak about "battening down the hatches," and "just hangin' on," it seems apropos. Bellwether Schlumberger (SLB:NYSE), which closed Tuesday at 83 3/4, fell 5% and
is a full 10 points off its 52-week high, reached just two weeks ago. But the bellwether of the sector was not the only stock that suffered a 5% or more drop. Every segment of the sector seemed to take a hit.
"No one is in the mindset to buy stocks yet," says John Lavoie, the Morgan Stanley Dean Witter analyst who is nowhere near ready to give up on the sector yet. "The fundamentals look great, but the technicals stink." Lavoie said there has been tons of put buying on the OSX, which tends to exaggerate the picture since it is a price-weighted index.
But Wednesday's trade could stanch some of the ugliness. After Tuesday's close Veritas DGC (VTS:NYSE)preannounced positive fiscal first-quarter earnings due to stronger-than-anticipated sales. Veritas, which fell modestly Tuesday, expects earnings per share between 90 and 95 cents, ahead of the First Call 10-analyst consensus of 76 cents and above the 28 cents in the year-ago period.
Wednesday should prove interesting. That could boost the equipment and drillers group and help stocks like Friede Goldman International (FGII:Nasdaq), down 2 11/16 at 23 27/32 on Tuesday, find some firmer footing.
The Veritas news could help more bullish investors focus on firm fundamentals. Doug Hohertz, an analyst and portfolio manager for the Mitchell Group, a Houston-based money management firm that runs a 100% energy-based portfolio for institutional clients, believes that the industry's prospects remains solid. "I don't think there has been any
big change," he says. "There's not been any kind of significant shift that would indicate any reduction in spending."
Hohertz said his firm was hanging on to its holdings -- not selling. But even though this is certainly a period where one could do some very selective buying, he said, they were not buying, either.
An analyst at Cambridge Investments, the San Francisco-based hedge fund, puts it more bluntly. "Nobody wants to be the first one to catch the falling knife," says Kurt Halleard. Cambridge, which manages about $1.5 billion, was simply "hanging tough," Halleard said.
Tuesday's mess was fairly thorough. Maverick Tube (MAVK:Nasdaq), which makes the pipes and tubing using in oil and gas wells, ended the day at 27 11/16, down 2 11/16, or 8.9%. This is the company that investors loved to talk about and that traded at 50 in early October. Two of the
offshore drilling companies, Marine Drilling (MDCO:Nasdaq) and Transocean Marine (RIG:NYSE), also took big hits: RIG dropped 3 1/16 to 52, and MDCO dropped 1 3/4, or 6.3%, to 26 3/8.
Exploration and production and larger integrated stocks lost slightly less than their service compatriots. Bulington Resources (BR:NYSE), which TheStreet.com looked at earlier Tuesday, fell 5/8 to close at 46 5/8.
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