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Saudi Arabia wants low oil price, according to Nelson portfolio manager. Give me a break!
cbs.marketwatch.com
...Nelson figures that perhaps the Saudis are keeping oil prices down in an effort to help revive Asia, because in the long term, Asian demand for oil is going to be good, "and long term, that's the best thing for Saudi Arabia."
Nelson likes SLB.
Another value play Nelson likes is Schlumberger (SLB), the oil services and calibration firm. He thinks it's been weak lately primarily because oil is down in price and investors are worried the oil companies will be doing less drilling and therefore have less of a need for the goods and services Schlumberger provides.
He notes that the company has a 23 percent return on equity, a
dominating industry position and a strong balance sheet. He figures the company should earn $3.00 per share this year and $3.70 next
year.ÿNelson points out that the stock's trading at about 18 times next year's earnings and while that's not "bargain basement, it's a big discount to the market's PE of about 23."
Here's the key, as far as Nelson is concerned. Schlumberger usually
trades at 1.5 to 1.75 times the market's multiple. It's now at a 22
percent discount to the market multiple. "If Schlumberger were to trade at its historic premium to the market, it would be 127 on next year's estimate" versus the current trading range in the high 60s.
"That doesn't mean that it has to double," says Nelson, "it just means
that relative to its history, it's trading a lot cheaper than it ever
has."
The most important factor, of course, will be oil prices. Nelson figures Schlumberger won't start trading again at a 50 percent premium to the market until those oil prices recover. He notes that oil cycles tend to run over longer periods. "We had a 17 year up cycle and about a 13 or 14 year down cycle," he says, "and the latest up cycle is only a few years into it."
Tulvio
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