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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: Thean who wrote (10780)2/6/1998 12:05:00 AM
From: Czechsinthemail  Read Replies (1) of 95453
 
Thean,

I concur with your tentativeness around predicting from here. I think the short term for drillers and oilfield stocks is very hard to call. There seems to be a bearish predilection in the crude oil market balanced by concerns over Iraq. I think it could tip either way depending on whether people think we're going to bomb Iraq or find some kind of negotiated settlement. Because drillers and service companies have been so heavily influenced by oil prices, I think a certain amount of caution is warranted around predicting either way.

I think the safest way to play it, is to be concentrated in the offshore drillers--the heavier the concentration in deepwater drilling the better. Because the long term is so attractive, I don't think you want to be out of these stocks. This is particularly true when you look at how deeply discounted and undervalued they are compared with virtually any other sector. With the overall market at or near all-time highs, this sector remains way below its highs. At the same time, earnings have been strong throughout the sector. Projections going forward are generally very positive with few downward revisions of earnings.

The land drillers seem more dicey to me. They may rocket if crude prices strengthen significantly, but they may drop further if crude prices fall. The uncertainty around whether dayrates will fall or rigs get stacked is likely to weigh on these stocks so long as the threat of lower crude prices looms.

good luck,
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