It's time to start drilling for oil and natural gas offshore on the east and west coasts. We are wasting our time and our money, and risking our future by not doing so. The energy needs of the United States have made oil our number one import and the biggest factor in our imbalance of trade.
It is not just that oil holds us hostage to the rest of the world. This imbalance of trade means we cannot support ourselves and must borrow from others to get by, and I, for one, have a very hard time with that notion. I prefer independence -- remember that? I think it was an important concept in our founding, way back when.
The imbalance in trade is a mortgage against the future of our children and it is getting worse year after year. The money often goes to foreign governments whose interests are not aligned with ours and they hold us politically and economically captive. Nothing is more shameful than President Bush pleading with Saudi Monarchs to pump more oil.
The need for oil drilling services will continue even if the price of oil declines, according to Richard Lehmann. Here, in his The ETF Investor, he looks at a favorite way for investors to play this trend.
"Oil prices have a triple or quadruple price boost associated with them. The first is supply/demand dynamics, the second is the weak dollar, the third is speculative fervor and the fourth inflation fears.
"A pundit said that last year it took 65 Euros to buy a barrel of oil and today it still takes 65 Euros to buy a barrel of oil. This illustrates the effect the weak dollar is having on U.S. prices and the international price of oil.
"Inflation protection used to be the province of gold, but now it seems oil is serving a similar function. We think the current oil bubble has not run its course.
"One of our past recommendations, the Oil Service Holders Trust (NYSE: OIH), was first suggested in February 2006 at a price of $101.50. We recommended it again in December 2007 at a price of $179.83.
Transocean (NYSE: RIG) is the world's largest offshore drilling contractor and a leading provider of drilling management services worldwide. The company owns, or operates, a contract drilling fleet of 138 mobile units, including 39 high-specification floaters, 29 midwater floaters, 10 high-specification jackups and 56 standard jackups. It operates in the world's major offshore oil-producing regions, including the Gulf of Mexico, the North Sea, Canada, the Middle East, Brazil, Africa and Asia. Chevron (NYSE: CVX), BP (NYSE: BP) and Petroleo Brasileiro (NYSE: PBR) are major customers.
The stock has been a steady gainer, since the January market downdraft, advancing on word of solid quarterly results, new and renewed contracts and optimistic analyst remarks. Essentially, a global shortage of deep-water drilling units has established a long-term, favorable pricing environment for the company.
TheStreet.com's Jim Cramer says the oil powwow won't solve anything, but it will give you an opening in the stocks.
Today we learn that "dozens of world leaders and executives" are going to Saudi Arabia to find out how to lower oil prices this weekend.
Yep, there we go. Short the oil futures. They will no doubt come up with a plan that will produce much more oil and curtail its use, bringing oil down sharply -- perhaps to $100.
Yeah, right.
Weak dollar, speculators, funds indexed to commodities, intransigent Saudi Arabians, terrorist activities.
I believe that all of those factors combined have lifted oil by about $20. But that could be overstating things -- it's no more than that.
Because if there was a lot of oil, you would see those futures smacked down to levels where all sort of cockamamie ideas for oil alternatives would disappear. Right now, with oil at $130, we could produce an alternative from oil shale that would be bountiful and that has been the spare capacity that can be brought on in the next four years.
In a challenging market amid an uncertain U.S. economic landscape, identifying long-term, promising investment opportunities becomes a difficult task. Further, to make the investment equation even more challenging, there's election risk, as well, with the 2008 U.S. Presidential election five months away.
Still, risk-adjusted investment opportunities exist. Accordingly, here's a 'Fab Five' that should rank with the best the equity markets have to offer, 3-5 years out.
(Note: Don't buy these stocks if you're interested in a short-term trade of six months or less. These are longer-term investments where the goal is a double-digit, average, annual, total return on equity over 3-5 years.)
Potash (NYSE: POT). Current Price: $212, p/e 47. Revised Stop Loss: $170. Potash remains the best of a very good fertilizer bunch, due to its 20% global market share in the namesake fertilizer. Consider buying POT on a pull-back to $202-203, but keep in mind Potash may not retreat to that level.
Mosaic (NYSE: MOS). Current Price: $132, p/e 40. Revised Stop Loss: $97. Mosaic also is well-positioned in phosphate and crop nutrients. Further, the fact that 66% of its revenue is internationally based is especially appealing, given the U.S. economic slowdown.
Transocean (NYSE: RIG). Current Price: $144, p/e 10. Revised Stop Loss: $110. RIG offers deepwater oil drilling services in all regions of the world, and it's an oil-thirsty world.
Freeport-McMoRan (NYSE: FCX). Current Price: $114, p/e 14. Revised Stop Loss: $69. Copper / gold / molybdenum miner Freeport is one of a handful of companies that have the economies of scale to compete in the global mining sector of the early 21st century, and it boasts impressive clients, to boot. Consider buying FCX on a pull-back to $111-113, but keep in mind Freeport may not retreat to that level.
CSX Corp. (NYSE: CSX). Current Price: $66, p/e 23. Revised Stop Loss: $48. Ride the railroad resurgence with this superior trade / commodity / freight transport company. The rails are in the transportation sweet spot: truck transport costs are rising with fuel costs, and the U.S. highway system is inadequate, with increased congestion likely, pending future investment.
Top Pick: Potash.
Safest Pick: CSX Corp.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
TheStreet.com's Jim Cramer says lots of companies now thrive with crude up here.
Oil's not a tax on everything -- it's a tax on the consumer. That's what I come down to when I see the charts this weekend and ponder what's happening in so much of industrial America.
Company after company that I examine -- the new techs, as I call them -- actually benefit from higher oil prices. Or they can pass them on with ease, because of the worldwide demand being so strong.
Take all of the companies involved with making a Boeing (NYSE: BA) (Cramer's Take): Boeing itself, Alcoa (NYSE: AA) (Cramer's Take), Honeywell (NYSE: HON) (Cramer's Take) and Precision Castparts (NYSE: PCP) (Cramer's Take) being good examples. Each of these is necessary because the new Dreamliner burns lots less fuel, and with fuel the biggest airline cost, it stands to reason that higher energy prices make the plane more desirable even at a higher price point.
Oil driller Transocean, Inc. (NYSE: RIG), whose shares have probed, but have been unable to move and stay permanently above $160 -- may have received the catalyst it needs to reach loftier price levels.
Transocean's shares jumped $8.34, ending at $155.54 after Bloomberg News reported that Petroleo Brasileiro (NYSE: PBR), Brasil's state-controlled oil company, leased about 80% percent of the world's deepest-drilling offshore rigs to explore prospects. That included the Western Hemisphere's biggest discovery in decades, the Tupi field. Further, the activity of Petroleo, also known as Petrobras, is forcing up day-rates for oil rigs. PBR also closed higher Thursday, up $2.00 to $68.27.
Further, Petrobras is in talks with Transocean to extend leases as much as three years ahead of expiration, Robert Long, chief executive officer for the Houston-based RIG, told Bloomberg News. Also, Petrobras plans to start pumping oil from Tupi in Q1 2009. Tupi is the largest oil find in North America since the 1976 Cantarelli field discovery in the Gulf of Mexico.
MOST NOTEWORTHY: MedicNova, Transocean and Lennox were today's noteworthy initiations:
Rodman & Renshaw is positive on MedicNova's (NASDAQ:MNOV) two primary products in development: MN-221, for the treatment of severe asthma and MN-166, an oral treatment for multiple sclerosis. The firm is also positive on MNOV's valuation; shares were initiated with an Outperform rating and $9 target.
Transocean (NYSE:RIG) is UBS's Top Pick as they believe it is the primary beneficiary of rising deepwater dayrates. Shares were assumed with a Buy rating and $201 target.
Suntrust initiated Lennox (NYSE:LII) with a Neutral rating and cites near-term visibility.
OTHER INITIATIONS:
Dean Foods (NYSE:DF) was initiated with an Outperform rating and $29 target.
Goldman started Parker-Hannifin (NYSE:PH) with a Neutral rating and $92 target.
Transocean Inc. (NYSE: RIG), the world's largest offshore drilling contractor, reported its first quarter earnings this morning, and surprised Wall Street by posting a profit that more than doubled for the quarter.
The company said its quarterly profit jumped to $1.19 billion boosted by soaring crude oil prices. The offshore drilling contractor also benefited from strong sales from its acquired competitor GlobalSantaFe Corp. Going into today's earnings announcement, analysts had been expecting the company to post a profit of $3.33 a share, but Transocean surprised everyone by earning $3.80 a share during the quarter. This is a nice rebound from the same period last year when the the world's largest offshore oil driller reported earnings of $2.62 a share.
Looking at revenue, Transocean said its quarterly sales sales more than doubled to $3.11 billion, compared with $1.33 billion in the same period a year ago, helped by strong sales from GlobalSantaFe. Analysts, on average, were expecting the company show $3.05 billion in revenue, according to Thomson Reuters.
Global oil demand, despite oil being more than $100 per barrel, remains solid. Further, there are increasing signs that the aforementioned international demand is likely to keep oil's price at lofty levels, even with a U.S. recession. That's bad news if you buy gasoline or oil, but good news if you own shares of Transocean.
Transocean (NYSE: RIG) offers deepwater drilling services in the world's major offshore oil-producing regions, including Africa, Asia, Brazil, Canada, India, Middle East, Gulf of Mexico, and the North Sea.
In general, analysts see RIG generating an 18%-25% total return on equity for 2008-2009, with an upside possible, given the company's strong position in deepwater drilling, which offers a higher return potential than shallow water drilling. And currently, it looks like a 2008 revenue upside is in sight for Transocean,
Further, given a capacity shortage sector-wide for deepwater rigs, dayrates have increased substantially, and look for RIG's pricing power to continue into 2009 (RIG's dayrate for 2009 is now $600,000 for high-spec, ultra-deepwater rigs). Prospects for Transocean's jackup rig market are not as bright, with a possible oversupply in early 2009. The Reuters F2008/F2009 EPS consensus estimates for are $14.15/$16.82.
Day one of the two-day FDA Anesthetic/Life Support Drugs & Drug Safety/Risk Management Advisory Committees meeting: Purdue Pharma's NDA for Oxycontin.
Anadarko Petroleum (NYSE:APC) to report Q1 earnings; conference call Tuesday at 10:00am.
Tuesday, May 6
Day two of the two-day FDA Anesthetic/Life Support Drugs & Drug Safety/Risk Mgmt Advisory Committees meeting: Cephalon's (NASDAQ:CEPH) sNDA for Fentora.
Molson Coors (NYSE:TAP) to report Q1 earnings; conference call at 12:00pm.
This market is tough. Pros and novices alike are having a tough time. Particularly in a down market, a market commentators like to call a ""stock picker's market," I find it illustrative to dig deeper into the holdings of those special professional money managers that have found a way to make a go of it.
Take the CGM Focus (CGMFX) fund. This fund consistently shows up at the top of 1-year, 3-year, and multi-year best performers. CGM Focus has returned on average 37% per year for the past five years. While this is absolutely no guarantee that it will continue to perform like this, fund manager Chuck Heebner seems to have the special sauce -- at least for now.
So, what has been so successful for the fund?
Commodity picks like fertilizer plays Potash (NYSE: POT) and Mosaic (NYSE: MOS) have been big positions and have been big winners. Steel plays like US Steel (NYSE: X) have performed very nicely for CGM as well.
Looking at what worked is somewhat like looking into a rear-view mirror. These gains were in the past. What's Heebner and team buying now?
With the national average of unleaded regular gasoline above $3.15 and oil's recent price surge not fully felt by refiners yet, there's a good chance gasoline will hit $4 per gallon this summer in the United States, particularly if driving patterns mirror previous summers.
What's a good way to cope with the above? Turn it your advantage, to the extent possible, at both ends. Accordingly, here are a few tactics for investors and consumers in the $4 gasoline era.
It's time to start drilling for oil and natural gas offshore on the east and west coasts. We are wasting our time and our money, and risking our future by not doing so. The energy needs of the United States have made oil our number one import and the biggest factor in our imbalance of trade.
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Transocean
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