Explorations-Aktien nach Öl und Rohstoffen
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| PKD - Parker Drilling Company (NYSE) | 7/20/2005 |
Precision Drilling und Parker Drilling
| PDS - Precision Drilling Corp (NYSE) | 7/22/2005 |
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| PKD - Parker Drilling Company (NYSE) | 7/22/2005 |
Jubak's Journal
5 stocks playing catch-up with oil<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
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Analysts and oil companies still are pushing up their estimates for the price of oil. Oil drilling stocks offer the biggest leverage on the difference between actual oil prices and projected oil prices.
By Jim Jubak
Is it too late to buy, or to add to your, shares of oil producers, oil service companies or oil drillers? Maybe you didn't buy at $40 or at $50. Should you buy now that oil has finally closed above $60 a barrel?
The answer is yes, even after Tuesday's big 4% decline to $58.20 a barrel -- if you buy carefully with an eye on getting the most bang for your investment buck. (It's an even more emphatic yes if Tuesday's decline turns into a dip on profit-taking before the long holiday weekend.)
I know it can be scary buying into a trend that has run as long and hard as this one has. The price of oil is 60% higher than it was a year ago. And stocks in the sector have soared in that time. Apache
Mighty oaks from little acorns may grow, but Wall Street experience warns us that trees don't grow to the sky. All trends end some time. Bubbles burst. Stock rockets flame out. Today's $200 stock is tomorrow's $2 stock.
All too true.
Longer than expected
But stock market history also shows over and over again that trends go on longer than investors think. For example, we all know that the housing boom isn't sustainable at its current growth rate, but when will the trend of ever-rising prices end? Business Week wondered just that in an article headlined "Is a housing bubble about to burst?" on July 19, 2004.
See the news |
About all that's safe to say now is that we're closer to the end of the current trend now than we were when Business Week asked its question a year ago. And that in the period since the Business Week article ran to the close on June 27 the shares of home builders Hovnanian Enterprises
But notice the difference in the gains posted by home builders and oil companies. The appreciation in oil stocks lags the gain in the price of oil. That's evidence oil stocks still are grounded in reality. In fact, for the last year, oil shares have climbed the famous Wall Street wall of worry as investors, analysts and oil company executives have stubbornly waited for oil to pull back to more "reasonable" price levels. The truth is that the most aggressive major oil companies like Shell Transport & Trading
A preference
It's that catch-up factor that'll take oil stocks higher, and it's the reason that I prefer oil drilling and service stocks to oil producing stocks now. Oil drilling stocks offer the biggest leverage on the difference between actual oil prices and projected oil prices.
Here's how it works. In December, when Smith Barney surveyed oil producers on their planned exploration and production spending, the survey showed that spending outside North America would climb 3.9% in 2005 from 2004. Smith Barney's just completed mid-year survey, however, shows a 13.1% increase. That huge acceleration is a reaction to the companies' growing belief that oil prices will certainly stay above $40 and maybe above $50 and possibly above $60 for the foreseeable future.
To see the leverage at work, apply that higher spending to an oil services industry leader such as Schlumberger
In the first quarter, Schlumberger's results finally broke with the lackluster performance of 2004. Revenue grew 18% from a year earlier and eked out a 2% gain from the fourth quarter. But since, like most oil drilling and service companies, a high percentage of Schlumberger's costs are fixed, the increase in revenue resulted in those fixed costs being spread over a larger revenue base. The result was a big pickup in the profit margin based on earning before interest and taxes. It reached 20.1% in the first quarter from 17.7% in the fourth quarter.
Wall Street now expects Schlumberger's earnings to climb 39% in the June quarter (to be reported on July 22 before the market opens) and 37% in the September quarter. Given what Smith Barney found in its latest spending survey, those numbers could well be low.
The purer the better
But as well as shares of Schlumberger should do for investors, the shares of pure drilling companies will do even better because these companies will see higher margins from two sources. First, like Schlumberger, they'll get cost margin improvement from spreading their fixed costs over a larger revenue base. Second, they get price margin improvement as the relative scarcity of drilling equipment earns them higher day rates.
And now, not only are those companies seeing higher prices for their rigs but also prices are climbing at a faster rate than they were at the beginning of the year.
For example, here are increases in the day rates for offshore drilling rigs, according to Sanford Bernstein. Day rates for the average jack-up rig jumped 18% in May from the same month last year. That's up from a 13% climb in day rates for this kind of drilling rig in the first quarter. Shallow floating rigs showed a 13% increase in May after rising 2% in the first quarter. And in the segment where supply is tightest, deepwater rigs, day rates climbed 25% in May after increasing 9% in the first quarter.
Why the acceleration in day rates? The world has temporarily run out of offshore drilling rigs just as oil exploration and production companies want more. In all categories, Sanford Bernstein calculates, effective rig utilization is at 100%. Since the year's beginning worldwide demand for rigs is up by 16 but only five are scheduled for delivery through the end of the year.
Here are the three picks I made during my 11:20 a.m. Wednesday appearance on CNBC's "Morning Call."
Big boosts
· GlobalSantaFe
Despite this cash-flow surge, the shares are trading at the average price-to-earnings ratio for the sector on 2005 earnings projections and below the average on 2006 projections. Our StockScouter rated the stock a 9 out of a potential 10 on June 29.
Using leverage
· Noble
In the Gulf of Mexico, a hot area for new drilling now, Noble's leverage adds 16 cents a share to annual earnings for each $10,000 increase in day-rates for jack-up rigs. Noble's fleet of 60 offshore rigs includes three drill ships, 13 semi-submersibles, three submersibles and 41 jack-up rigs. Our StockScouter rated the stock a 9 June 29.
In the deepwater
· At Transocean
That tight supply has sent day rates soaring so that each new contract brings in significantly more than the last one. So, for instance, the contract that starts in June 2006 for the company's Deepwater Millennium rig sets a day rate of $288,000, up from $200,000 in the last contract. The day rate for the Deepwater Horizon, in a contact that starts in November 2006, is $240,000, up from $135,000.
Our StockScouter rated the stock a 10 on June 29.
Exclusive picks
My two exclusive picks for CNBC.com on MSN readers are two stocks outside the drilling sector that also are likely to profit from the continued boom in oil.
· OMI
Our StockScouter rated the stock a 10 on June 29.
· Chicago Bridge & Iron
The solution is to turn natural gas into a liquid (hence LNG for liquid natural gas) by super-cooling it, pumping it into special tankers and then, after a long ocean voyage, turning it back into gas that can be sent through pipelines to consumers. Chicago Bridge is in the business of designing and building these storage and processing plants. That work has been the driver in doubling backlog from a year ago. The first quarter also saw a record level of new orders.
Our StockScouter rated the stock a 5 on June 29.
Changes to Jubak's Picks
Buy Noble
Owning Noble
Earnings took a beating in 2004 as the company pushed new rig construction scheduled for completion in 2005 into the end of 2004 in order to take advantage of rising demand for rigs and rising day rates. This added capacity, especially the added deepwater capacity, should let Noble break into the very lucrative Southeast Asia market. The consensus among analysts is that earnings will climb 113% to $2.40 a share this year. Even that huge jump gives the company plenty of earnings overhead, though. Lehman Brothers calculates peak earnings per share for this cycle at $8.83 a share. I'm adding Noble to Jubak's Picks with a June 2006 target price of $76 a share. I'd set a stop loss at $54. (Full disclosure: I will buy shares of Noble three days after this column is posted.)
New developments on past columns
Get ready for a nice growth surprise
Well, so much for that slowdown in the U.S. economy that so worried the stock market in late April and early May. Remember it? It all started on April 28, when the Commerce Department issued its advance first-quarter report. That showed economic growth in the first quarter dropping to 3.1% from 3.8% in the fourth quarter and dropping from 4% in the third quarter.
Since then, we've had two revisions to that initial reading. The first revision raised the first-quarter growth rate to 3.5%. The second, released on June 29, put growth for the first quarter at 3.8%. That's the same 3.8% growth rate the economy showed in the fourth quarter, and that pretty much puts the kibosh on the belief that the economy is slowing dangerously under the impact of higher short-term interest rates from the Federal Reserve and steeper oil prices. Not that everything in the final GDP report was rosy: The housing sector remains the economy's key growth engine. Investment in the residential sector -- otherwise known as "housing" -- climbed 11.5% in the first quarter, almost triple the 3.4% growth in the fourth quarter. The current pace is certainly unsustainable in the long term.
Editor's Note: A new Jubak’s Journal is posted every Tuesday and Friday.
E-mail Jim Jubak at jjmail@microsoft.com.
| GSF - Globalsantafe Corp (NYSE) | 7/22/2005 |
SCHLUMBERGER LTD - New York Stock Exchange: SLB (NEW charting help)
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Forbes
Why oil stocks are still cheap<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
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With demand outstripping supply, oil prices are bound to stay high for some time. So oil stocks, despite big gains, still look good.
By Forbes.com
The price of oil is one very big factor that makes this stock market tough to navigate. Every time oil prices edge up, investors get nervous. In late June, when per-barrel costs moved above $60, the market swooned. Meanwhile, economic growth has slowed, along with employment increases. To further disconcert investors, prices of non-oil commodities and industrial materials are off.
Add in low long-term interest rates, whose nature is an enigma even to Federal Reserve Chairman Alan Greenspan. The holder of a 10-year Treasury gets only 4%, despite rising short-term rates and hints of inflation. A flat yield curve seems imminent, and that doesn't generally portend good economic times. Is what we're seeing simply a pause in a rising economy, or something much worse?
People, understandably, are wondering what to do.
Start investing with $100. |
If you own bonds, keep your positions small and your maturities short, preferably under a year. If inflation accelerates, which appears likely, holding long bonds would take a chunk out of your capital. By staying short, you may not make anything after inflation and taxes, but you will keep your capital intact for opportunities ahead.
In your stock portfolio avoid deep cyclicals (autos, airlines, steel, heavy machinery) and other issues heavily dependent on riding a robustly growing economy. Even if economic growth ticks up from its current rate, the play in these stocks is over for a while. More attractive are health care and consumer staples, which are less sensitive to economic rhythms.
Related oil commentary on MSN Money and Forbes
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Oil: a good place to be
A truly good place to be during these times of rising oil prices is, yes, oil stocks. A year ago I gave some reasons why higher oil prices were likely to stick, such as surging Chinese demand and terrorism threats. I recommended ChevronTexaco (CVX, news, msgs), Kerr-McGee (KMG, news, msgs) and Burlington Resources (BR, news, msgs). Since then, including dividends, those stocks are up 26%, 47% and 54%, respectively.
The integrated oil companies, which encompass everything from drilling to gas stations, and the pure exploration-and-development companies still provide good value despite large rises in their stocks. Because their profits are up smartly as well, their price-earnings multiples have stayed low. The huge overhang of excess supply (2 million or more barrels a day for most of a generation) has disappeared and is not likely to emerge again anytime soon. Supply, with almost all oil-producing nations pumping at full capacity, is now 500,000 barrels per day below demand, according to the International Energy Agency's Oil Market Report. This will keep pressure on prices, even without disruptions from terrorists, labor strife or politically motivated cuts in output.
A year from now we will still be seeing significantly higher oil prices than were prevalent during the invasion of Kuwait in 1990 -- conservatively, $40 to $55 a barrel. Any crisis could push prices higher, perhaps substantially.
If oil prices hold near current levels, significant room for multiple expansion exists. Most companies have already paid down a good part of their debt and can now apply their enormous cash flows to share buybacks and dividend increases. Also, for both the smaller integrateds and the exploration-only groups, there is a good chance that the increasing pace of takeovers will continue.
Exploration outfit Anadarko Petroleum (APC, news, msgs), loaded with cash, is likely to increase its reserves by acquiring smaller explorers. Earnings should rise this year by 22% to $1.7 billion and continue rising in 2006. The stock trades at a P/E of 12 and yields 0.9%.
Apache (APA, news, msgs) is a similar company, with reserves in the U.S., Canada, the North Sea, Australia and Egypt. Apache put large amounts into exploration -- a planned $2.75 billion this year, compared with $2.45 billion in 2004. Production thus far this year has increased 7.5% as a result of the stepped-up capital spending. Apache trades at a P/E of 11 and yields 0.5%.
Canada's EnCana (ECA, news, msgs), a large producer of oil and natural gas, should benefit from both higher prices and increased production. Encana is selling most of its noncore assets, such as its gas-storage business, and is using the proceeds to reduce debt and buy back 10% of its shares. The stock trades at a P/E of 12 and yields 0.7%.
Occidental Petroleum (OXY, news, msgs) produces oil and natural gas, as well as chemicals. The company is having a banner year. Earnings should rise at least 20% in 2005, with strong results likely to continue. Occidental trades at a P/E of 11, yielding 1.6%.
By David Dreman. Dreman is chairman of Dreman Value Management of Jersey City, N.J. His latest book is "Contrarian Investment Strategies: The Next Generation