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Gold/Mining/Energy : Trico Marine Services (TMAR) -- Ignore unavailable to you. Want to Upgrade?

To: JZGalt who wrote (629)	7/31/1998 7:50:00 PM
From: jad	Read Replies (1) \| Respond to of 1153

Has the Oil Service Sector Bottomed? from Briefing Through the first seven months of 1998, the worst performing industry in the S&P universe has been the Oil Equipment & Services group. The industry underperformed the S&P 500 over this period by 42%. On two separate occasions since the sell-off began last October, Briefing opined that a bottom was near at hand, only to see renewed declines and a rash of new 52-wk lows. Despite generally strong second quarter earnings, many of the companies in the sector are now warning that future results might not live up to expectations as oil companies are cutting exploration budgets due to the sustained drop in crude prices. Not surprisingly analysts have been busy trimming estimates for the out quarters. But with the group down 42% year-to-date, the only logical conclusion to be drawn is that much of the bad news is already factored into these stocks. Unlike in the chip sector where many of the stocks are pricing in a second half, or early 1999, rebound, oil service stocks are pricing in continued weakness. Given the market's disdain for OPEC and Asia's ongoing financial woes, it's not a big surprise that the street is skittish about forecasting an end to the supply glut and subsequent reversal in oil prices. However, Briefing contends that the pessimism has as much to do with getting burned by the group over the past two quarters (from a performance standpoint) as it does with the actual fundamental outlook. Last quarter, crude prices averaged about $15 a bbl or 24% below where they were a year ago. The prospects don't look much better for the next one to two quarters, as oil prices are projected to remain in the $13-$15 range. However, a number of developments have occurred over the past couple of months to suggest that crude has put in its lows. First and foremost, OPEC reversed its ill-timed decision to ramp up production. After seeing the consequences of its actions - lowest crude prices in nearly two decades - OPEC moved to reduce production by as much as 1.2 mln barrels a day. If crude prices move below $14 bbl for a sustained period, further production cuts are likely. Japan is finally moving in the direction of serious economic reforms. Though the country is unlikely to move as fast at reforming its economy as the west would like, the steps being proposed, if enacted, will provide the building blocks to a sustained economic recovery. And the market won't wait for actual proof that the recovery has taken hold before making investment decisions based on the assumption of a recovery. One such assumption will be that the demand for oil from Japan, and the rest of Asia, will reaccelerate. US Senate is considering adding nearly 28 million barrels of oil to the country's reserves. While not a huge total, it represents about 8% of the stocks held by US companies. Put simply, it reduces supply. Finally, US and European economies remain strong. None of these factors are likely to have an immediate impact on the price of oil. Consequently, we expect the sector to remain dead money for the next few months. However, we think the pieces are in place for a gradual recovery in crude prices by early 1999. A normal to cold winter wouldn't hurt matters either. Considering the already depressed stock prices, the discounted valuations (see table below), generally solid financials and the recent spat of consolidation, look for the sector to slowly win back momentum investors as crude prices firm. We've been wrong twice before and we risk being so again, but it is our belief that the intermediate- to long-term risk/reward ratio favors the upside. As such, patient, risk tolerant investors, willing to ride out some additional near-term volatility, should be rewarded with much better than market capital appreciation by doing some early bargain hunting in the much maligned oil services sector. Stock 7/30 Close 52-wk Hi/Lo Estimated P/E Est. 5-yr Growth Rate P/CF (TTM cash flow) Baker Hughes (BHI) 25 7/16 49 5/8 - 24 7/8 13.51 18.2% 11.2 Cliffs Drilling (CDG) 21 1/2 82 - 19 3/4 5.66 21.67 4.02 RB Falcon (FLC) 17 1/4 34 3/16 - 15 1/4 10.29 33.4 n/a Global Marine (GLM) 14 3/8 36 13/16 - 14 1/8 8.23 19.3 6.86 Halliburton (HAL) 37 1/8 63 1/4 - 35 1/4 16.83 18.38 11.36 McDermott (MDR) 26 3/16 43 15/16-25 7/16 13.09 11.67 4.42 Schlumberger (SLB) 62 11/16 94 7/16 - 59 7/8 21.24 19.55 12.68 Smith Intl (SII) 27 3/16 87 7/8 - 25 9.92 19.51 5.31 Tidewater (TDW) 29 3/4 70 1/2 - 27 11/16 8.16 15.19 4.70 Transocean (RIG) 41 1/8 60 1/2 - 35 14.34 27.66 4.88 Unifab (UFAB) 12 3/4 43 7/8 - 12 1/4 7.99 28.55 9.81

To: JZGalt who wrote (629)	7/31/1998 7:58:00 PM
From: jad	Respond to of 1153

OIL SERVICE SECTOR: The near-term outlook for the oil service sector remains clouded by ongoing supply concerns which continue to be exacerbated by Asia's economic malaise. Despite relatively strong earnings in the most recent quarter, a number of warnings for the out quarters due to the sustained drop in oil prices have triggered a rash of earnings/ratings downgrades. Crude prices for the second quarter of CY98 were on average 24% below year ago levels. But with the group having underperformed the S&P by about 41% year-to-date, much of the bad news has been factored in to the price of these stocks. And a number of small but positive developments have occurred over the past couple of months that point to an improved fundamental backdrop. They are:  OPEC reversed its ill-timed decision to ramp up production. After seeing the consequences of its actions - lowest crude prices in nearly two decades - OPEC moved to reduce production by as much as 1.2 mln barrels a day. If crude prices move below $14 bbl for a sustained period, further production cuts are likely.  Japan is finally moving in the direction of serious economic reforms. Though the country is unlikely to move as fast at reforming its economy as the west would like, the steps being proposed, if enacted, will provide the building blocks to a sustained economic recovery.  US Senate is considering adding nearly 28 million barrels of oil to the country's reserves. While not a huge total, it represents about 8% of the stocks held by US companies. Put simply, it reduces supply. Add to these factors, the lag effect of reduced exploration and the likelihood of a colder winter and the ingredients are in place for firmer crude prices by early 1999. While the group should remain on the defensive for the next few months, patient, long-term investors might want to do some early bargain shopping in this sector as stocks are trading at deep discounts to the market and their projected l/t growth rates. from Briefing

To: JZGalt who wrote (629)	8/1/1998 9:55:00 AM
From: D.J.Smyth	Read Replies (1) \| Respond to of 1153

Galt, Jeff: <<Third, will there be any drop off in oil prices which will further screw up the supply demand picture.>> probably not much below this point. the largest single use of oil is power generation (not gasloine consumption as many assume). when oil falls below $14 a barrel (using light sweet crude price as a bench mark) it becomes as cost equivalent to use in many power generation plants as gas (and in some less costly). at $12 to 13, power generators stock up on cheap fuel; so oil falling much below this level would probably prompt significant contract stockpiling for future consumption. most power plants have factoring values which switch between gas and oil relative to "cubic burn price" (the amount of oil needed to power X for T time at Y price versus the amount of gas needed to do the same - oil is also less costly to store/deliver in many places than gas for power generation. this is already happening. many power plants in those places where the switch is meaningful (at $14 oil) are switching to oil. $12, $13, $14 is an "automatic" bottom. the only factor that would cause it to fall below $12 is if oil dumping began to occur in the market place. this hasn't been seen to date. it's possible dumping would occur if the cash strapped arabs began to panic; this is very unlikely though. what does the switch from oil to gas say about the 70% gas embedded US gulf? not much. gas use has been increasing at a more rapid pace than oil consumption in nearly all markets around the globe. 60% of the world population still has "inadequate" housing relative to US and European standards. OT: weird stuff: caught the last part of a television show about a book written by a Jewish journalist entitled "Bible Code". this jewish guy goes through the mathematical codes (the Hebrew language is both a numbering system and a language) in the Bible and states that past world events were encoded there, giving about 50 uncanny examples. he says the words "nuclear holocaust year 2000 and 2006" are also encloded! heck this would bring up the price of oil!! they had a few rabbis on their scoffing. sounded really interesting to me. BUY the way, more bought TMAR at $11 around here (oil studs as it were). I'll commit a significant amount of my personal cash when I get the green.

To: JZGalt who wrote (629)	8/3/1998 8:28:00 PM
From: JEFF A. KEHL	Respond to of 1153

Thanks for the comments. <<There are quite a few semiconductor companies, semiconductor equipment manufacturers and possibly a few networkers where 200-300% in 3 years is a possibility since they have been so beaten up.>> I started buying TMAR because it reminded me of another stock in the semiconductor equipment business. It was earning tons of cash, well managed, but destroyed in price because the entire industry was suffering from plunging dram prices. I bought in the low 20's and sold last year in the low 40's. That stock is down to around 18 now over the Asia problem. It fascinates me how the sentiment on a stock can take that wide a swing all in 2 years. The fundamental business did not change at all during that time. If you could look beyond the current crisis it was still a great business. I have to take that philosophy with TMAR as well. I'll continue to buy it until I run out of money because I believe I have the fortitude to wait two years if necessary and survive the gut checks (today for example!)