Must-own oil service stocks

Posted Feb 7th 2007 1:14PM by Steven Halpern
Filed under: Newsletters, Schlumberger Limited (SLB)

If you don't yet own oil-services stocks, commodity and resource expert Eric Roseman says "You better. I'm expecting big returns for everything energy-related in 2007."

In his Commodity Trend Alert, he states, "Whatever you do, hang on to your energy investments. By the end of this year, you'll be lighting firecrackers on New Year's Eve. I'm that sure." Here, he looks at some of his favorites, which he consider "must own" oil service plays.

The advisor notes that corrections for the energy complex occur in every bull market, and that the most recent one is no different. However, he notes, "What's incredible is how bearish sentiment had become for oil since earlier this month; just six months ago, analysts and traders were forecasting $100 per barrel by spring. They then began to forecast $40!"

Roseman, however, has remained bullish through the correction and notes, "In addition to tight supplies, still at 86 million barrels of oil per day against 84.5 million barrels consumed."

And, he cautions that we could be at "the cusp of another major military confrontation in the Persian Gulf." He notes, "Over half of the world's oil supply comes from the Middle East, mostly from Saudi Arabia and Iran. The U.S. is playing hardball with Iran and I think we're going to have a major escalation in this crisis. I don't have to tell you what a confrontation, any confrontation, will mean for the price of oil."

Meanwhile, he notes that corporate earnings for his energy stock positions have been solid. One such favorite is Schlumberger Limited (NYSE: SLB), which he calls the 'Mother of all drillers.'

He notes, "The steep drop in oil and natural gas prices that began in early December didn't put a dent in fourth quarter profits; Schlumberger reported a stunning 71% profit or $1.1 billion dollars." Further, he notes, the company expects 'significant' growth in 2007.

He adds that Schlumberger is also the largest holding in the iShares Dow Jones Oil Services and Equipment ETF (ASE: IEZ) - which also happens to be one of his top holdings.

Overall, regarding oil drillers, he says, "I expect to see a major break-out for this sector in 2007, fueled by a recovery in oil and gas prices, geopolitical unrest, mergers and acquisitions and possibly, the failure of ethanol as a cost-effective gasoline additive. Everyone should have a big chunk of the iShares Dow Jones Oil & Equipment ETF."

Steven Halpern's TheStockAdvisors.com is a free, daily website which offers the latest stock ideas from the nation's leading financial newsletters.

Tags: commodity trend alert, energy stock, eric roseman, iez, ishares dow jones oil services and equipment etf, oil service stocks, schulmberger, slb, steven halpern, thestockadvisors, thestockadvisors.com