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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: upanddown who wrote (49496)	8/19/1999 11:54:00 AM
From: SliderOnTheBlack	Read Replies (1) \| Respond to of 95453

<< under a slider spell a while back and was bailin', some of us were buying >> JOHN, John, john... now C'Mon - I do not think that the 'ole Bull is capable of being spellbound, hypnotized, of otherwise influenced by anyone - especially me. Let's be accurate here for once John; I think Bull & myself and others here - saw yet another trading-range rally in which to sell into - we did; we ''booked'' yet another trading range profit. Rotated into other short term trades - many were 20,30%+ short term plays and also we bought some short-mid-term value, laggard rotation plays - once again. From where ''some'' of ''you'' were buying into this rally - I do not think we've moved too much - sector still looks rather rangebound from what I see... We've stalled here into the face of a spate of analyst upgrades; that is not very positive imho - I saw lots of selling, portfolio trimming into strength as well. It was NOT as if these upgrades were fundamentally driven either...not as if OSX co's blew through estimates or anything... Perhaps you missed those previous charts I have been continually posting comparing the OSX to the E&P's during these trading ranges of late. More important than their outperfomance there, was the huge amount of substantial individual trading opps that many took advantage of; much to the continual chagrin of many who prefer a more buy & hold approach - which of course is fine, just different strokes - for different folks. However; I just believe in a volatile sector that is in a fundamental upturn - that trading makes more sense than when we are more fully valued and ''toppy'' environment. Now She's Blond; just posted a great article by Prudential here - on how the Oil Majors, Integrated's and E&P's are going to blow through estimates to the upside in Q3 by an average of at least 20%. That was a landmark post folks - and it was not the first brokerage/analyst commentary of the short term fundamental dynamics in bottomline results that the majors & E&P's will be reaping as Q3 will be virtually the first reporting quarter where the accross the board realization of these present high Crude & Nat Gas prices will be realized. Also - they will shatter, qtr over qtr & year over year qtrly comparisons. They analyst upgrades & price target increases will be spewing out in Q3 imho. ..... and "THAT" folks - drives shareprices - and that is why I am 100% in E&P's ! We have a market anomaly here imho. The comparison of the sharprice to fundamentals - between the E&P's - especially lagging mid & small cap companies - to the driller/service stocks is huge ! One sector has positive present bottomline fundamentals and is about to very, very shortly blow through analyst estimates - and show dramatically positive bottomline improvement - and the other subsector (OSX) is moving - and will only continue to move for another qtr, or two - on ONLY the ''expectation'' of what the majors & the Independant E&P's do Cap Ex spendingwise in the next few quarters. What has been lost on this thread - imho; is the fact that the Majors & Independant E&P's are under TREMENDOUS pressure by the Street NOT to dramatically increase cap ex spending here folks ! They are being pressured to repair balance sheets - pay down debt, continue to shed non-core properties etc. The recovery expectations ''TIMEWISE" in Cap Ex spending is vastly over- enthusiastic here imho... Read analyst commentary on some of these majors & independants - one analyst showed a report where Royal Dutch Shell would throw off an additonal $200M in free cash flow if they continue to maintain Cap Ex Spending discipline. The #1 mistake people may make here - is in being overly optimistic - timewise; in the expectations of when the majors & independants will actually increase cap ex spending to a degree to impact rig counts, dayrates and the backlogs of the mfg & service co's to a degree that the Street will increase valuations here by a substantial degree. Untill we ACTUALLY see realworld fundamentals of rig counts - and just merely seeing these +10 to 15 weekly increases in rig counts is NOT enough - we are still something like 12 weeks away with continual 10+ increases in rig counts - to merely be where we were last year folks - at the same OSX valuations ! - tell me we are not optimistically fully priced here on a fundamental basis !?!?! We are over 100+ rigs behind where we need to be to EVEN support the present valuations here people ! - We are trading rangebound - as we have been for 12 months; UNTILL dayrates and earnings substantially move. We have been told - what that takes to happen. ie: 150 Rigs working in the GOM - per RDC's Palmer etc... It takes 150 rigs working before there is ANY GOM dayrate pressure folks ! Did anyone notice how many rigs FLC coldstacked here ? We have a long, long way to go in rig counts & dayrates for the drillers and a real, real long way to go in backlog stability - some co's backlog loss is staggering - yet alone untill we actually see positive mfg/service co backlog growth. We need vastly improved, new project orders & service contracts before we are even fundamentally at where we have been historically to support these same valuations. Do not confuse what i am saying here; it is NOT that the OSX is overvalued, should be sold, or shorted; that there are no values, or laggards that ''are'' buys here etc. - not at all. What I am saying is merely that the OSX stocks are much, much, much - ''less good'' (VBG) than the E&P's and they look to be fairly, to even slightly overvalued on a fundamental & historic basis. This a a virtual fundamental to value comparison market anomaly between the OSX stocks & E&P's here imho.One subsector (E&P's) has very positive ''present'' bottomline fundamentals - and is about to vastly explode through the upside of present analyst estimates in Q3 (per Pru & others reports) - which will lead to qtr over qtr & year over year upside comparisons - which will lead to analyst upgrades & higher price targets - which will lead to higher share prices. The other subsector (OSX - driller/service) has just had analyst upgrades based NOT upon the bottomline fundamentals - but merely on the optimistic expectations of future bottomline recovery. Ceo after CEO from the OSX co's have continually kept moving back the timeframe of actual bottomline recovery of late. It is still at the minimum - 2 quarters away before the get the ''work'' and even later yet before they get to report the qrtly results ! - there can also be no guarantee that the majors, or independant E&P's will dramatically increase cap ex spending to the degree allready factored in here by analysts... You tell me which ''bet'' you want to take... ???? One side is getting it right here , right now - they also very importantly control their own destiny; they choose rather to pay down debt, step up drilling - make acquisitions etc. - with this new push to the bottomline. The OSX co's have no such flexibility here ! this is a 1-2 quarter no brainer imho. Play the E&P's for their dramatically superior present & nearterm fundamentals - and their dramatically superior expected upside in analyst upgrades & upwardly revised price targets. We've allready seen the upgrades to the OSX stocks -here and we look to be rangebound once again; perhaps OSX 78-82 to OSX 94-100. While the OSX could have a nice 10-15% upside by year end; we have many, many individual E&P's with realistic 30-50% upside within 90 days - yet alone year end imho. John; take this E&P mini-basket and compare it to the OSX through say Nov. 30th - bookmark it and come back to compare Only time will tell.... RRC - 50% OEI - 25% EEX - 12.5% MEXP - 12.5% ... just my usual humble rumblings... $lider.