To all - especially Baird Soule, Big Dog, Paul Levy, David Einstein.
My two holdings -- ESV and TDW -- may be among the worst performers in this sector, but they are still seem to be the best in terms of fundamentals. (Does that say something about the rationality of markets?)
Telescan's sector search is on the blink, so I just ran an "all stocks" search looking for undervalued high growth companies. Criteria I used: company growth ratio (peg ratio reversed), high as possible; EPS rank, high as possible; projected EPS rank, high as possible; gross profit margin (high as possible); p-e ratio, below 20; ROE, high as possible; 1-year sales growth, high as possible.
Of the 25 companies turned up, 7 were oil service stocks. Ranked in order, they were: ESV, TMAR, TDW, CKH, CDG, NE, and PDS.
THEN I added, in list-only mode, debt-equity ratio and free cash flow. I am very conservative in this regard: I assume companies with low debt (below .50) and lots of FREE cash flow (cash flow left over after capital expenditures) to weather storms better than the others.
Well, TDW came out way on top, with the second-to-lowest debt and with an exceptional (especially for this sector) free cash flow situation, placing it in the 93rd percentile. Competitor TMAR was at the bottom, with the second-to-highest debt (.89), and with negative free cash flow, placing it way down in the 2nd percentile. So, I'm sticking with TDW (on the perhaps mistaken assumption that virtue will eventually be rewarded), even though TMAR is doing better at the moment.
Next came ESV (.40 for d/e, 67th percentile for FCF). Coupled with its top rank on the growth parameters, this is impressive.
Of the five remaining companies,only one (PDS) had positive free cash flow, NE had the lowest debt (13.7), but very negative free cash flow (20th percentile). CDG had the highest debt (.99), as well as negative free cash flow (34th percentile), suggesting, to me, that this company is especially over-extended.
However, the fact remains that the "best" (by these criteria) companies are not the best performers pricewise. This suggests not only that The Market (whoever or whatever that is) is looking for something else, but also that free cash flow is not perhaps the best way of determining which companies have the most fat on their bones (to withstand famines).
The fact that so many oil service companies were "in the red" where free cash flow is concerned really puzzled me when I first started looking at the sector last summer, and I asked about it on this thread. The gist of the answers I received was "who cares -- the sector is flying high." But it isn't flying high any more (although it MAY take off again, IF...add your own conclusion). And my question still remains: is there a better criterion for making a fat-on-the-bones determination? Is the "capital recovery factor" a possible substitute? I didn't quite understand the recent discussion of that (#16792 and #16806), and hope somebody can straighten me out. Thank you in advance!
jbe
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