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

To: Rosemary who wrote (7804)	1/13/1998 10:55:00 AM
From: jad	Read Replies (2) \| Respond to of 95453

Rosemary, no longer a 1; now at 3. See below: OILFIELD EQUIP.........3/1..........12/23.............(-) Comment: In a couple of Brief's over the past few weeks we have reiterated our belief that the fundamentals in the oil services sector remain sound despite a number of market anxieties. While we still think the long-term outlook for this group is excellent, we are conceding that the fear factor is apt to keep the group on the defensive over the short- to intermediate-term. The Kyoto Protocol and the deepening financial crisis in Asia are the primary factors weighing on the group... It may take as long as 3- to 5- months before the cloud of uncertainty is lifted over the group... As such we amend our 12/09 update (below) and downgrade the group's to a 3/1 from a straight 1. 12/09 review: After racing higher for much of the year, the sector stumbled in November. The main factors behind the slide were: Easing tensions in the Middle East. OPEC's decision to increase production quotas by 10%. Declining natural gas prices due to expectations of a mild winter. Slackening demand from a slowing Asian region. Desire on the part of portfolio managers to lock in profits. November is also a weak month for the oil services and equipment sector historically, as investors grow nervous that drilling activity in the upcoming year will slow. Exacerbating this year's seasonal weakness was the sector's sterling performance year-to-date, as managers used the aforementioned developments as their cue to lock in profits (and bonuses). But given that the group's long-term fundamentals remain in place (strong worldwide demand, high utilization/day rates and increased operating efficiencies), we suspect that the investment community's fondness for the fast-growing sector will return. Even so it is unreasonable to assume that the oil services and equipment sector will match its strong performance this year in 1998, if for no other reason than expectations are higher. But the recent retreat should not be taken as a sign that the sector is ready to roll over. To the contrary, we believe that the market overreacted to a number of short-term developments as tensions in the Middle East may ease from time to time but they never seem to disappear; OPEC's increase in production quotas will not translate into glut of oil given strong demand and fact that Iran and Libya recently announced that they have already hit full capacity; the decline in natural gas and oil prices has yet to reach levels which will discourage new drilling and could prove temporary; and the demand shortfall from Asia (difficult to quantify at this time) will only be a short-term (one to two quarters) problem. As such we think the recent slide has created a good opportunity for risk-tolerant, growth oriented investors to do some bargain hunting. Briefing is reiterating its outperform rating. However, it should be noted that the higher multiples raise the level of risk associated with investing in this group. Stocks: Baker Hughes, Dresser Industries, Halliburton Co., McDermott Intl., Reading & Bates, Schlumberger, Tidewater