It looks like oil prices are headed to uncomfortable levels again, if not the stratosphere, and all this even before the U.S. and global economic recoveries take hold. Well, look at it this way: you can seethe at the gasoline pump, or you can consider owning shares in oil services company Weatherford International Ltd. (NYSE: WFT).
In general, analysts expect the trough in oil servicing to end in FY2009; margin recovery may lag, but upstream capital spending should provide a nice tailwind heading into FY2010. Institutional investors have sensed this, and have been incrementally adding to positions since March. The First Call FY2009/FY2010 EPS estimates for WFT are 87 cents to $1.06.
Longer term (beyond FY2010), analysts are also impressed by WFT's plan to boost its Eastern Hemisphere business – this from a company already with a healthy 45%/55% domestic/international business ratio.
The risks are obvious enough: a collapse in oil's price to below $35 will negate much of the above. That has about as much chance of happening as the Washington Nationals baseball club winning the National League pennant in 2009.
Stock Analysis: Weatherford International is a moderate-risk stock. Consider buying a 25% position in WFT 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 WFT position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $6.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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Reader Comments (Page 1 of 1)
6-05-2009 @ 1:25PM
Iridium said...
I understand you want to give good advice to well heeled investors who really don't care about paying $5 a gallon for gas. A large enough purchase in the oil sector can add millions to their net value.
But what about the 200+ million people in this country that can't afford to invest in oil. They will be destroyed by by $100+ oil.
Do you really want to cause a further economic collapse? Maybe you do. Maybe traders care so little for the population, that morals and ethics are so far from the minds of profiteers, that they will never look at what they are doing as anything but making money for themselves. A bull market means profit, even if there is no evidence to support it. Once the positions are covered the bullish traders will switch to bears and profit on another downturn.
It sickens me that people are willing to drive oil above $100 based on nothing but their own greed. Then drive it down to $30 for nothing other than pure greed.
Making money by causing harm to others is just as bad as the Mafia taking protection money. Ethical standards must be enforced, by a gun if necessary.