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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: RGinPG who wrote (15292)3/18/1998 12:32:00 PM
From: Czechsinthemail  Read Replies (2) of 95453
 
RG et al,

With both oil prices and drilling stocks up today, I think investors get to make some decisions about whether they want to bet on a bullish oil price scenario or a more bearish one. My guess is that companies like RIG and DO that are most heavily committed to long term deep drilling contracts should continue to do relatively better in the weak oil price environment. In this sense they are safer. But other companies have been more heavily sold off and I think carry more rebound potential as oil prices recover. If oil prices move back up considerably, the land drillers will probably be the biggest winners. If they increase more modestly, jackup and shallow offshore drillers seem like the best plays since they will have the optimum combination of full rig utilization and quick pass-through of dayrate increases. So far, I'm not convinced that we've seen the end of the falling oil price scare, but I'm willing to consider the possibility that we're right around the lows and that the end is near. My most recent buying has been in FLC and ESV. They are both among the most heavily oversold and should have more upside potential on the rebound. They also have a noteworthy strength in expected earnings for this quarter. As we've all seen, the movement of the sector takes companies up or down with it. But there are factors influencing the relative up and down movements, and in about a month one of those will be earnings announcements. With all the other uncertainties, I've wanted to be in the companies that will be showing the strongest earnings growth this quarter. I've felt a bit reluctant to buy RIG at these levels, simply because I've thought the others were more oversold and offered better bargains. But if the "rally of the damned" continues and yesterday's dogs continue to show greater relative improvement on the recovery, I may sell and shift some of that money to RIG. I think its earnings growth is bulletproof regardless of oil prices.
good luck,
Baird
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