Time to get-ahead-of-the-pack with Cameron

Posted Apr 24th 2009 6:00PM by Joseph Lazzaro
Filed under: Stocks to Buy

The Obama administration's promise to create a more self-reliant, energy-independent nation and the impact of efforts to first limit, then eliminate global warming from fossil fuels opens the door to alternative energy source development.

But, as Saudi Arabia reminds us, and the world, barring a breakthrough technology, fossil fuels will remain a major energy source for at least the next thirty to fifty years. In other words, oil is down now, but it's not out, and so Cameron International Corporation (NYSE: CAM) is worth a review.

Wall Street pummeled shares of oil and gas pressure control provider Cameron, after the leverage-fed oil bubble burst in 2008, taking shares down from about $59 to $16. Talk about irrational behavior: that hair-cut was way overdone. Shares have recovered to about $27, but the Street remains cautious, as if by ignoring the company, the longer-term demand for oilfield capital equipment and deep water support equipment will disappear???

Well, oil is relatively plentiful now, amid a global recession, but that's just a disguise: demand will quickly ramp once emerging markets start to recover, Cameron will be ready for it, which makes the company's p /e of 10 just too low to pass up. The First Call FY 2009/FY 2010 EPS estimates for CAM are $1.76 to $1.66.

Stock Analysis: Cameron is a moderate-risk stock. Consider buying a 25% position in CAM now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $12.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: CAM, Cameron International, oil services