Elmer Chuzz; - Bingo !
Good points on ''the blessing in disguise''...DO's $1Billion in cash ! as mentioned by the 'Dog is a prime example. TDW's day will also come; they can pressure dayrates down to where the competition can not compete longterm to gain/keep market share and still show stellar financial performance if measured against the rest of the stock market's companies. The factor of the over-leveraged/high debt companies not being in a position to compete with low/debt and low cost providers, gets more valid in tougher times. We should see ( in line with my theory of a ''degree of decoupling shareprice/company value from crude pricing) the market separate the oil driller and service sectors into ''haves'' & ''have nots'' -- and one of the prime factors will be their efficiency structure. Again, low debt - low cost will rule and high cost - high debt will be left behind. Along with this of course; will be the subsectors that are more or less highly regarded such as Ultra-deepwater vs. shallow GOM or land based drilling or service stocks.
A smart ''bet'' right now is the oft-mentioned deepwater plays with drillers like RIG & DO, high tech ala Core Labs etc. and depwater service co's like CXIPY & SCSWF (2 of my fav's).
If you like boats - TDW is the long term choice or in drillers; deep is DO, or RIG , shallow is CDG or MDCO for the above reasons...IMHWBNBO
IMHWBNBO; this stands for ...In My Humble Wanna Be New Bie Opinion...
PS; more later on my thought on the ''decoupling'' from crude prices - Big Dog; looking forward for your comments on this one...
Related to it; in today's PARADE magazine (a national newspaper insert) a cover story on the future potential of short supplies and high crude prices - gee; must be alot of ''wanna be'' & ''newbie'' international economists, scientists, geophysicists, industry insiders and a few ''Nations'' that share my beliefs !....apparently -
For those that are buying into the ''gloom & doom'' of how oil driller and service stocks can not ''decouple'' (never ever - according to one canine) from crude oil prices --- they have too ! - if you guys want to make any money here !
as this link will show.
wtrg.com
If you throw out a few historic ''blips'', the historic & rather flat median price of crude is $15 +/- ...this is where we are now and many predict we will be for a long time. So; if we see a gradual increase in the share price or PE expansion to where we all conservatively expect over the next 12-18 months, of say 20-50% stock price appreciation from here. There would have to to be a ''decoupling'' - (to some degree) or how and why ? -- did the market , analysts, fund managers and individual investors buy, participate in, upgrade, increase earnings estimates for and buy ''up'' this sector; if to some degree there wasn't ''decoupling'' ? ...because we may still be in a $15 +/- crude market for some time... SO, if you do NOT believe there will be some ''degree'' (IMHO - a major degree...) a ''decoupling'' from crude prices - you are foolish to be invested in this sector - unless you're betting on $20 crude; which the accompanying link will document - is a historic ''fools'' bet !...
I personally, do think we will see a ''rubber band'' effect - a snap back in a reversal of the supply/demand balance we now are in due to the over reaction in reducing E & P activity and infra structure and cutting production. But, this is not how I am basing my investment strategy. - this ''snap back'' will just be temporary icing on the cake ! I'm basing my strategy on dynamic increases in demand due to the modernization & industrialization of Russia, Eastern Europe, China - Asia minor and Mexico, Central & South America...also Africa to a degree... Irregardless of ''blips'' up or down in crude - this sector's best of the best - will show a decoupling from crude price blips because they are just now in the beginning stages of PROVING to the market that they are able to grow both sales and earnings in the face of declining crude prices - actually, arguably the worst crude price enviroment in a decade... For anyone (canine or homosapien) who argues with this... remember, this industry via dynamic consolidation and technological advances in the last few years is in it's infancy technically, - as we now know it ! So my main point is going forward the market will allow ''decoupling'' for the reasons I coverd, and remember - there is NO history that they haven't ! - because of the infancy of the ''modern'' oil driller and service sector, ie: the impact of seismic - 3D & 4 D leading to the formation of a dynamic subsector - unknown a decade ago - with Geco-Prakla, WAi, PGO, VTS etc... or technologies like Core Labs or equipment speciality companies, or even the advent of ultra-deepwater drilling in recent years like RIG is doing - and the accompanying service sector for companies like CXIPY, SCSWF, CDIS, DIVE etc. let alone the new niche in Rig fabrication for the ultra- deepwater which didn't exist years ago - so FGII & HLX, or GLBL, VRC etc. are the new paradigm companies that will ''decouple'' because, what is going on right NOW in the 'patch is the beginning stages of a subsector & technology decoupling from the old staid, traditional oil drilling segment... ie: traditional land drillers, rig fab companies, simple boat companies etc. These companies and subsectors will prove, as they are doing now - that they can and will grow revenue and earnings in the face of major downturns in crude pricing... and the market will, soon - very soon ''decouple'' these from the traditional oil sector and traditional valuations and traditional proxies to crude. By ''decoupling'' I do NOT mean - that the factor of ''crude prices' will not be in the equation at all. But, rather that it will not BE the entire equation - or 75% as it is now. If it's not 75% - then how can small & large cap stocks alike be decimated price wise in the face of record earnings and meeting estimates...(i"m just using the 75% as a point here) - as no one can argue that right now - this sector goes as crude prices go.
My point is that - this is changing as we now speak... of which I will address later...
The major correction to the overall market (which I expect - but not DOW 4000 for LT fans...) will lead to sector rotation and a spotlight upon the tremendous financial performance by the ''best of the best'' in this sector. This sector's best companies have performed under a baptism by fire... to financially perform as they have - this will not go unnoticed by the market. Going forward the driller and service subsector stocks will loose much of their cyclical nature. This will allow a more permanent investment base by the market and substantially close the PE and value gap to other sectors and the over all market. It will NOT be totally eliminated, do not misunderstand, but a major degree of ''decoupling'' WILL occurr ! The Oil-Patch's'' day in the sun was NOT last fall; but it is coming in the near future... soon, very soon ! |
