...fighting the trend, catching falling knives and other dangerous acts:
Your point is well taken that the primary disclaimer must be to differentiate between active traders and long term buy & hold investors. The long term buy & hold investors can use these major corrections as buying opportunities to lower average cost basis in current holdings or as fundamentally strong entry points into new positions; such as mine into MDCO today.
I think this is a very good sign that not everyone is labeling this as ''the bottom'' or ''the'' buying opportunity etc. Being somewhat new to the oil patch, I respect and heed the bearish warnings of not fighting the trend, not trying to catch falling knives, attempting (financial) suicide by buying now and so on... However; no one has pointed out that many of these companies that are at or near 52 week lows like HMAR, TDW, PKD, MIND, MAVK, BHI and many more that are within 10-15% of their 52 week lows and at levels only 35% - 50% of their 52 week highs have met or even exceed estimates, many growing earnings and revenues 25-35% annually and in some cases we have companies that have doubled revenues and earnings that are still at or near 52 week lows ! How can a company be sold down to a price level where it was trading at a year ago; having since dramatically grown, increasing revenues and earnings ? Seems like quite a bargain when we get a company with a 50-100% larger revenue and earnings base at the same price as a year ago, or in TDW's case the same selling price as the spring of 1996 ! If these stocks at 1/2 of their present sales and earnings levels were a bargain a year ago; what are they now at the same price but with a proven ability to earn a profit in a negative crude oil price enviroment, and dramatically increased sales and earnings revenues ? Look at the many positive acquisitions and strategic moves many of these companies have made. PDE is another example of a company that went from a primary land driller to a geographically diverse offshore driller, but still sells at it's land driller PE and valuations. How about the number of rigs that BDI has acquired (brilliant @ a market low) when land drillers are stacking rigs, refurbrishing many - preparing for the eventual return to historic average crude oil price levels. Think Baker Hughes is a little stronger than a year ago ? How about pure value plays like MIND or PKD or TBDI at a PE less than 7 or HMAR at a PE of 8 and at a 52 week low, but dramatically expanding into a more profitable and less volatile international market with a huge backlog of business and has grown revenues 50% +. For new investors making their 1st entry into the oil patch who could possibly argue with buying FGII @ $32-33, MDCO @ $18-19, FLC @ $28, GLM @ $22, TDW @ $38 - we do not have to be at ''the'' bottom; compared to valuations and earnings growth in the rest of the market - this is nirvanna !
I have seen few published estimates from analysts of projected earnings for drillers using much lower day rates and land drillers with much lower utilization %'s and more stacked rigs.. I have lost virtually all respect for most analysts. These guys get paid big$ for jumping on the escalator after it is clearly going down or up - not much talent, guts or effort there... However I've read individual estimates that seem to be fundamentally sound and even in a worst case scenario these companies will have solid earnings and growth. A high percentage of these drillers have long term contracts and I can not believe that we will be in such a long term bearish crude price enviroment that these contracts upon renewal could possibly fall to price levels deserving of these current stock prices.
The only possible case I can see for not buying the hell out of the oil patch right now; is if one truly believes we are in a new paradigm of long term (virtually permanent) depressed crude prices of $12 +/-.
Does anyone really believe with the modernization of eastern Europe, China/Asia and South America that we will see any sustained depression of demand for crude ? How can prices not rebound in a relative short time frame and does anyone think that OPEC will not act in its own best interest to alleviate the impending financial crisis they will face relatively soon at these price levels? How about the tremendous technological advances made in lowering the cost of production or the supply/demand situation due to aging fleets of boats and rigs ?
Yea as I walk into the valley of the shadow of death, bearishnesss and short-sellers in the oil patch, I fear no evil; for I am filling my shopping cart with some of the best damn values that exist in the market today! I see ''nothing but net'' in the patch ! |
