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

To: Alexander Hardin who wrote (6482)	1/2/1998 8:51:00 PM
From: Tony D.	Read Replies (3) \| Respond to of 95453

I too have been looking into DO. I currently am in Tidewater (TDW) and want to take up another position in the drillers. Diamond Offshore looks good and has been receiving favorable press as of late. Only wish it was discussed a little more here. Good Luck, Tony D.

To: Alexander Hardin who wrote (6482)	1/2/1998 11:16:00 PM
From: carl	Respond to of 95453

Team - I found this on the AOL Oil and Gas board today. Found it interesting and don't believe I'd seen it referenced before. Can anyone confirm the long-term 60% premium to the S & P. I thought the drillers spent many years in the 80s with PEs of 3-4. Thanks. Carl Subject: Rymnd James Oilfield report Date: Fri, Jan 2, 1998 15:25 EST From: Bags136658 Message-id: SHOPPING FOR VALUE IN THE OILPATCH OPEC, Iraq, Asia, El Nino, oil companies' budgets, industry capacity, (too much/not enough) are buzz words that have given Wall St. an excuse to take profits in oilservice stocks over the past months. These concerns have led to severe declines in oilservice stocks with many small capitalization stocks down 50% from their highs. These declines have been so severe that valuations in this sector are probably the most compelling since the 1989s. Out of a group of approximately 70 oilservice companies, the average 1998 PE is 16x, with many trading in the 10x range. Relative to the S&P 500, these stocks are trading near historical lows. If we consider 1) how dramatically this group has fallen off, 2) how cheap these stocks are relative to historical trading ranges, and 3) how cheap these stocks are relative to their earnings growth rates, we believe their risk/reward ratio is extremely compelling. Looking at relative multiples, the oilservice group has for the past 25 years traded at about a 60% premium to the S&P 500 on trailing 12 months earnings. Today, based on the trailing 12 months earnings, the oilservice group is trading at approx 20% discount relative to its historic average. What is even more compelling is that based on 1998 earnings estimates the group is trading at a 24% discount to the S&P or a 52% discount to its historic average. Only twice in the last 25 years has the group traded at a discount to the S&P. Once from the period between 1981 and 1983 when oil fundamentals went out the window after Saudi Arabia lifted its embargo, thereby saturating the market with oil, and second between 1991 and 1992 after the Gulf war when an artificially inflated oil price came back to earth. Each of these occasions was pre-empted by significant changes in energy prices. The question today is, "Have fundamentals changed so dramatically over the past two months that earnings growth in the oil patch will come to a virtual standstill?" We don't think so given the current strength in the 12 month strip prices of oil and gas, the main drivers of oilservice activity. In fact, according to First Call, th4e oilservice group should grow earnings by approximately 63% from 1997 to 1998. One rule of thumb many value investors use to gauge the attractiveness of a stock is to compare expected earnings growth rate with the P/E multiple. The theory holds that if the forward earnings growth outpaces the current earnings multiple, the stock still has upside to its current price. If we compare the groups 1998 earnings growth rate of 63% to its 1998 price to earnings ratio of 16, this theory would suggest that oilservice stocks still have substantial longer-term potential. (This Institutional report with accompanying table comparing stocks was written 12/2 by J. Marshall Adkins and Gary Russell. I have pluralized "month" to "months" to make it more current. At that time the recommended PDS, MAVK, NSS PTEN all of which they make a market in or have an underwriting relationship with...since 12/2 they have added a BUY on BDI). I get many research reports but find Raymond James' to be if not the best, damn close to it!)