Finally; someone gets it ! ...re: BOGEY's news story post.
If you're long for fundamental, contrarion, or just plain 'ole bottom fishin reasons, - this article should have been like a religious experience.
In my opinion; once the logic & the math behind the fundamental valuations are validated (as they were so eloquently in Loren Fox's article) then it is only a matter of time untill the market - ''gets it.''
''The truth shall set you free'' and just maybe the market will set the oilpatch free with the truth that they really do not have to be a proxy for crude oil prices; that crude can fall to historic lows and drillers and service stocks can still grow earnings and revenues to historic highs !
As these companies grow earnings and revenues in the face of a ''the sky is falling'' mentality, slowly the market will discover reality. The silver lining in the recent black cloud hovering over the oilpatch may just be the permanent decoupling of the valuation of this sector being tied directly to oil prices. When analyst and institutional managers realize that E&P companies are facing historic demand levels just around the bend from Asia, Eastern Europe and the former un-industrialized 3rd world; they will realize that growing proven reserves is the name of the game and not only is exploration not dead, but it is in high gear and trader & futures driven oil price fluctuations will not and can not bring this sector to it's knees. Yes, utilization goes down, land rigs get stacked, jack up rates soften and the Major Oil's acting prudently announcing what some bears often refer to as ''massive cuts'' - you know the type; 6-10% increases in year over year budgets versus the prior planned 15% increases... ''massive cuts'' yeah right. When major seismic surveys are done 2-3 years before the first barrell of oil may be pumped; requiring the E&P companies to be working today for a payday 2-3 years down the road and the major players like VTS & PGO get sold off - someone doesn't get it. When ultra- deepwater subsea construction companies like CXIPY & SCSWF come off record earnings, blowing away analyst estimates and simultaneously announce major contracts worth $100's of Millions and then selloff - someone doesn't get it. When companies like HLX, FGII, VRC, GLBL have backlogs in some cases all most as much as their priors years sales and get sold off - someone doesn't get it. When companies like Rowan today announce a record quarter, growing revenues and earnings and are down 30-40%; someone doesn't get it.
I'm not saying that in the face of historically low crude prices, that the driller and service stocks shouldn't have sold off, or show PE contraction and even downward earnings and analyst revisions; but not the decimation to the level that we are seeing today.
IMHO this article very effectively paints a reality picture of the oilpatch. One doesn't have to call THE bottom, or try to catch the proverbial ''falling knife'' to be successfull or profitable here. We are at historic buying opportunity levels here and it doesn't really matter if there is another 10% downside or even 20%; when there is 50% to 100% proven upside just in a retracement to April or May levels in some stocks. Anyone show me a better risk/reward model in the market. Someone show me a sector setting records in revenue and earnings growth - selling off 50% and at PE's 1/3 to 1/2 of the S&P .
Many like DO & FLC have newbuilds coming online with huge long term contracts; How can these companies be worth the same amount as a year ago, with this new capacity coming online now and in the next few quarters ? Some will have grown earnings and/or revenues 30-50% - this doesn't indicate value; it screams v-a-l-u-e- !
The oilpatch's biggest problem is the strength of the rest of the market; as long as investor's read all the media hype rationalizing the historically ridiculous PE's of the Blue Chips like GE or WalMart and ride the allmost Ponzi Scheme-like elevator of the Internet stocks; we will not see the sector rotation that will be the fuel for the fire... It sure would make me nervous holding Coca Cola or GE at those PE's levels... talk about begging for some profit taking. How can one not take his profits now in these stocks and rotate in at the bottom to the patch escapes me... perhaps because of comments like those of James Cramer here;
''This is a tape that likes bad news and loves good news. Merck (MRK:NYSE) gets a shoe-in approval for some drug? Let's take it up a couple. Nothing bad happening at Microsoft (MSFT:Nasdaq)?
Let's give that a higher multiple. Things sounds just okay at Intel
(INTC:Nasdaq)? Heck, that's better than terrible -- let's expand the
multiple. No preannouncements in hardware techland? Well, let's unleash the purse strings and put that money to work. Japan in disarray? Love disarray. Oil drillers announcing bad numbers? OK, we aren't that stupid. They still won't go up. There is dog food that even dogs won't eat.''
...''dog food'' that even dogs won't eat. - sounds like a buying signal to me ! - Cramer's been trying too hard in ''dissing the drillers'' lately. It would only be prudent for a hedge manager to be buying before touting... not accusing JJC of this; but guarantee some big boys are buying while badmouthing...there's been a classic shakeout of the liitle guy lately; the shorts just blitz any rally - the only way anyone can or is buying here is on pure logic and fundamental value; or perhaps reading what the traders are doing here. We're close, real close....gonna be an interesting week or two as earnings come out and then the ''biggie'' the supply stats & numbers on the OPEC cut compliance. |
