For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"My favorite aggressive recommendation for 2008 is Acergy (NASDAQ: ACGY)," says Elliott Gue, editor of The Energy Strategist.
"Acergy provides engineering and construction services for offshore oil and gas developments with a particular focus on deepwater projects. Acergy's most important business is what's known as SURF -- subsea umbilicals, risers and flowlines.
"SURF relates only to wells that are developed with subsea completions, meaning that the well is installed directly on the seafloor. When wells are installed on the seafloor, operators need ways to control the well remotely.
"This is done via electrical and hydraulic systems; umbilicals are nothing more than electrical and hydraulic cables that connect a surface-based platform to subsea wells. The term riser refers to a flexible steel pipe that connects underwater pipelines or wells to surface-based floating production platforms. Risers actually carry oil and/or gas from subsea developments to the surface.
"Finally, flowlines are smaller diameter pipes used to transport oil and gas underwater. Obviously, all subsea developments require the installation of SURF. Acergy's heavy concentration in this area gives it extraordinary leverage to deepwater.
"But despite Acergy's strong leverage to the red-hot deepwater market, the stock recently stumbled after releasing disappointing guidance for 2008 and 2009 earnings in November. The disappointment related to two main issues: some execution difficulties at its Mexilhao project in Brazil and some likely delays to contract awards in West Africa.
"But the E&C business can be a lumpy one. Earnings in any given quarter are highly dependent on a handful of large-scale projects. If one of those projects slips, it can have a dramatic effect. Of course, this isn't a sign of a lack of demand or growth potential.
"These contracts will definitely be awarded; it's just a matter of timing. I'm not overly concerned about this lumpiness. In fact, the selloff in Acergy following this announcement looks overdone. Buy Acergy under $27."
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