This article in the current issue of Worth Magazine presents
a compelling case for oil drilling and services stocks:
worth.com
Here's the case for the sector in general:
"The energy story has all the makings of the most explosive investment theme I've ever been involved with," he says. Energy stocks, especially those of the supply and services companies, "are under-owned, under-researched, misunderstood, with explosive revenue, earnings, and cash-flow gains, all selling at a discount to the market."
"Our production surplus is running out. There simply aren't enough straws in the ground to produce what we need."
It's difficult, at first glance, to see why Tozzi thinks the fundamentals are in his favor. Winter temperatures along the densely populated mid-Atlantic coast hovered between 50 and 60 degrees through most of late December and early January, holding the prices of natural gas and home heating oil well below their usual midwinter highs. Iraq has resumed oil-for-food exports, dumping more crude on a market reeling from OPEC's early-December decision to raise production quotas by 10 percent. Little wonder that oil has tumbled from $20 a barrel last November to about $16.50 in mid-January.
Good reasons, you might think, for a savvy player like Tozzi to short every oil stock he can borrow. Instead, he's buying up the stocks of oil drillers and oil-field-services companies-the outfits that supply the specialized equipment needed to draw hydrocarbons out of the ground. He's doing it because, in his view, one stark fact trumps the entire fundamental case against oil: The world is experiencing the tightest supply-demand balance in oil and natural gas in a decade. "We are pumping 97 percent of proven producing capacity," says Tozzi. "If the Asian economies hadn't slowed, in fact, we could have been in deep trouble." It's not that there's no more oil down there, explains Carl Thorne, CEO of Ensco International, an energy-exploration and - production company, "but our production surplus is running out. There simply aren't enough straws in the ground
Cooper Cameron is particuarly recommended:
To capitalize on the trend he sees, he bets on companies with managers who have experienced the bad years. Guys like Thorne of Ensco (NYSE: ESV; recent price, $25.56), Sheldon Erikson of Cooper Cameron (NYSE: RON, $50.63), and Luigs of Global Marine (NYSE: GLM, $19.94) know how to maximize earnings through the ups and downs of the oil cycle and maintain financial discipline, reinvesting earnings in new and upgraded equipment while keeping their balance sheets strong and their bank accounts stuffed with cash. Tozzi also knows the power of market share. "When you're Cooper Cameron and the big dog in subsea pressure-control equipment," he says, "you dictate the pricing, not your customers." |
