George, I allways pride myself in beating the crowd to the Party ...
...even though that may merely be a ''simple minded '' philosophy...(VBG).
George, my ''bet'' isn't even so much on us having a ''major'' retracement here as it is a ''mild one'' - while simultaneously there is a rally in the micro-cap E&P's. This presents a situation where I can take profits at a trading base top and put my money to work much more profitably in laggards and especially in the micro & small cap E&P's here - much more profitably and with much less risk. The fundamentals are much more compelling. The time will come to move back into the Mo-Mo move of the OSX plays, but that time has not yet arrived...
per Barons:
{...the oilfield-service stocks -- which have been the hardest-hit since late 1997 -- have gained the most, rising on average 54% since the beginning of March, this group actually is the least sensitive to rising petroleum prices.
Instead, the service stocks are driven by expectations for capital expenditures; they gain only after the drillers have benefited ..}
{... Integrated companies, such as Arco and Mobil, are the most directly affected by price changes. A $2 move from, say, $16 to $18, adds 30% to earnings. Hence, despite a 27% gain in the group's shares since March, many of these companies' stocks don't reflect today's higher prices, says Paul Ting, an oil analyst at Salomon Smith Barney. }
**** Big Bull - repeat after me (VBG) - 1st the E&P's , then the Drillers, and last the service companies... - is VRC a service company (VBG) ? unless someone magically gives VRC a $300 Million order soon, real soon, the Market will have to give VRC a ''dot.Com'' valuation PE to come anywhere near its 97-98 valuations anytime soon. VRC is a great company - my point is that we need to soberly look at the realistic nearterm fundamentals and at what companies & sub-sectors ''really'' have the nearterm earnings visibility to support significantly higher valuations nearterm. - but, remember; I am speaking - NEARTERM". Longterm, VRC will be fine...but, I firmly believe you could potentially ''double'' your money elsewhere in the meantime...
The Industry-wide restructuring has also primarially benefited the E&P/Integrated companies like Marathon; who will make more money at $15 Oil this year than it did 2 years ago with $18 Oil - due to restructuring efficiencies. Now that they may see $18 Oil this year - earnings are potentially poised to dramatically exceed expectations.
For small & mid - cap E&P's; many were decimated due to required charges & writedowns due to Oil Prices.Many of these small caps were sold off as they fell under the $5 shareprice floor of most mutual funds. These same companies will see the other side of the coin as Oil prices have ramped dramatically. The fortunes for these small & micro-cap companies turned on a dime; as nearly simultaneous to the mass announcements of fiscal year 1998 non-cash writedowns; Oil Prices ramped - creating a virtual value & accounting anomaly.
While the OSX appears to potentially be waffling in the deadzone - with a lack of fundamental catalysts to either possibly support present prices - let alone to take them significantly higher; micro cap E&P's like CRK rose 40% & RRC 30% this week alone ! - and that's only the start and that's only a few...
Many of these companies are still 1/3rd to 1/2 of their valuations of last fall when Oil prices were 40% cheaper ''and'' prior to taking these required non-cash impairment writedowns. Right here - right now; these companies are reaping the benefit of $17-18 Oil - they do not need to wait for anyones orders, or Cap Ex budgets to be increased to materially increase their earnings from 6 months prior. Their fundamentals are extremely positive and are nearly the reverse mirror image of the driller & service companies short-term.
Many small cap E&P's are selling at significant discount to the OSX stocks per this chart:
techstocks.com
GaryB; I don't know about 200 day moving averages, but I have numerous trades on-going in many E&P's that are still 1/2 to 1/3rd of their Sept-Oct highs ?? Compared to their valuations of last Sept-Oct when Oil was $10-12 - the small cap E&Ps have significantly better fundamentals and will have immediate earnings benefit from todays higher Crude & Gas Prices. They do not need for anyone to increase Cap Ex spending, for utilization, dayrates, new orders or anything, or anyone ! - they reap the bottomline benefit of higher commodity prices immediately. As such, their positive fundamental comparison to the driller & service stocks in beyond discussion. Add the accounting anomaly that has been basically reversed allready with the 40% spike in Crude prices, as this is not yet reflected in shareprices; and we have the ultimate ''trading opportunity'' imho... you know - 'ole Big Bull may just be right - this is a { A simple minded argument.} as he says... in #43170 {VBG} !
Here is a 20 day chart; but it has been in the last week here, that the OSX has really waffled a bit - and the E&P's have really widened the short term gap in performance. My portfolio has certainly benefited via profit taking in the OSX stocks and rotating into E&P's... dramatically so in fact !
techstocks.com
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By Bob Williams, Managing Editor-News, Oil & Gas Journal
ogjonline.com
{But, as the oil industry is finally beginning to learn, in the marketplace of today, perception is reality.}
{ But don't buy that extra Rolex just yet..."the non-commercials' net open interest in WTI on Nymex has switchbacked violently from 36 million bbl short to 44 million bbl long, sustained by news that, this time OPEC is serious about complying. Small wonder that prices have soared, adding to the hysteria with every upward jolt. However, with such huge long positions open, prices need a steady diet of good news to stay buoyant. News that compliance is wobbling could cause a swift price correction, as happened with rumors-quickly denied-that Venezuela might not comply straight away." }
*** too far - too fast ? I don't know, but more importantly I realize that here presently - me ''knowing'' doesn't even matter; as Crude Prices are entirely in the hands of the Traders ...reality does NOT matter - only ''their'' perception matters ! - truer words have never been spoken... Excellent point by Bob Williams above ! The shift from short to long positions in crude oil certainly bodes for only continued volatility here shortly.
One will make much more money here - by focusing on what the Street thinks, than what we - ''ourselves'' think ... this point is paramount ! In the early, or pre-recovery stage; what ''we'' think can allow us to arrive early & cheap. In mid-recovery stage - calculating how the market will react to what the ''Street'' thinks will be the key to making money... and we are now in that ''sentiment cycle'' imho. Reality doesn't matter, what we think, or even ''know'' doesn't matter; only what ''they'' think matters right now - so you had better be damn sure you know what ''they'' are thinking right here...
It's just that simple (VBG).
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*** "E&P's - A simple minded arguement ? hmmm; why worry about who may, or may not win in the Middle East if these markets are opened up as far as driller & service companies ? We know the International Oil Majors will be there - but at why cost, what timeframe - what OSX companies could benefit ? Will this happen in 2 years, 5 years, ever ?
IMHO, there are much better risk vs. reward bets than that. First, why not ''play'' a major trend that is happening right now ! Why even bother with OPEC, or the Middle East, when the smart bet is the explosion in Natural Gas powered Electric Plants ! - and we don't even have to worry about any OPEC induced supply gluts, or compliance issues - now do we ...(VBG).
bloomberg.com
Demand for natural gas will rise about 43 percent to 30
trillion cubic feet by 2013, as electricity producers and other
consumers increase gas use, according to the U.S. Energy
Department's Energy Information Administration.
Energy News Sat, 24 Apr 1999, 11:20pm EDT
Tennergy Sells $234 Mln in Bonds to Buy 10 Years of Natural Gas:
Bank of America has done eight similar natural gas swaps
over the past 18 months with agencies like the Municipal Gas
Authority of Georgia, Florida Gas Utilities and the Municipal Gas
Authority of Mississippi.
*** to ''win'' this game, you had better be able to spot the anomalies in risk vs. reward trends. Do you want to ''bet'' on when the Intnl Oil Giants will cut loose their purse strings, or when OPEC will comply, or not ? Or do you want to a more ''simple minded arguement'' (VBG) ! Sounds like Bank America and a few Utility Giants are taking the ''simple minded'' route... ohhh so much info - so little time... give a man a piece of bread and he eats for a day - give him 3 pushes in the E&P direction and he may retire 10 years early if he listens (VBG).
Are you listening (VBG) ? |
