Cameron International: Time to Take Some Profits off the Table?

Posted Apr 27th 2010 11:30AM by Joseph Lazzaro
Filed under: Oil, Stocks to Buy, Stocks to Sell

Cameron International (CAM), which I first wrote about on April 24, 2009 at a price of $25.59, is up more than 80%, hence I think it's perfectly acceptable to take some profits off the table at this juncture.

Meanwhile, those investors who can tolerate the risk could retain those shares and go for an even bigger gain.

Look for Cameron to continue to benefit from longer-term demand for oil field capital equipment and deep-water support equipment on ramping oil demand in the immediate years ahead. Further, new technology that's likely to increase natural gas drilling and production (via a technology called hydraulic fracturing) in North America also holds out the promise of increased valve business for CAM. And Cameron's recent purchase of Natco Group, an energy capital equipment company, will increase international business.

The First Call FY2010/FY2011 EPS estimates for CAM are $2.24 to $2.82. Each EPS estimate looks about 10% low, according to my analysis.

Technically, Cameron's stock chart is strong -- an uptrend, but with above-average volatility. Hence, I wouldn't consider CAM if you can't tolerate 10% to 15% price drops in a month. The stock will also encounter major psychological resistance at $50.

I'd also raise the sell/stop loss to $26 from $18, making this a zero-risk trade for your April 2009-bought shares.

2010 Outlook: I view Cameron as a long-term play, but if investors are looking to sell CAM in a year, it's probably best to avoid the shares, as the one-year risk/return is not favorable.

Stock Analysis: I consider Cameron International to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 25% position in CAM now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 50% of my CAM position before June 2010 and I'd put a sell/stop loss at: $26.

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

Tags: CAM, Cameron International, inthenews