Strictly: Drilling and oil-field services Message Board

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Gold/Mining/Energy : Strictly: Drilling and oil-field services

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To: Amelia Carhartt who wrote (28169)	8/22/1998 8:01:00 PM
From: Elmer	Read Replies (2) of 95453

MSB, explain the rationale of your recommendation of selling all oil service stocks. Or is it just another one of them random guesses that a lot of people seem to be making. While these guesses have seemed to work in the last few months, there is no rational reason for these guesses to continue working. Salomon Smith Barney, Paine Webber and Merrill Lynch all came out this week and lowered estimates to their worst case scenarios for 1999. End result is some companies still offer more growth potential at lower valuations than the overall market with significant upside in earnings estimates if for some reason oil gets back above $17 by mid 1999. For example: Noble Drilling: Paine Webber 98EPS Est. 1.49 Paine Webber 99EPS Est. 1.90 Growth = 27.5% 99 P/E = 8.0x Salomon Smith Barney 98EPS Est. 1.53 Salomon Smith Barney 99EPS Est. 2.25 Growth = 47.1% 99 P/E = 6.7x Merrill Lynch 98EPS Est. 1.50 Merrill Lynch 99EPS Est. 1.90 Growth = 26.7% P/E = 8.0x Above 20% growth estimated by each one on worst case type of scenarios and under 10x P/E. In my book, this is a favorable risk/reward tradeoff. Many people are forgetting that a lot of these companies have some nice LT contracts on deepwater rigs coming on line over the next two years that provide good EPS growth even with jackup dayrates at or near B/E levels. FLC and RIG also provide 20% type of EPS growth with below 10x P/E's. To lump companies like this in with ESV and GLM is just not an accurate leap. While I do believe GLM and ESV (both trading below NAV) offer huge upside if oil prices do recover faster than the "experts" seem to think, companies like FLC, NE, and RIG offer good growth even of the current situation persists into 1999. And if the conditions actually improve, watch out!! as these stocks could double by year end. Investor uncertainty and fear present awesome opportunities for those willing to look at the facts and position themselves accordingly. Good Luck to All, Elmer

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