Halliburton (NYSE: HAL) shares are trading higher today after an analyst wrote in the Wall Street Journal over the weekend that despite rises in oil prices, many oil stocks and oil service companies are undervalued based on price/earnings ratios. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on HAL.
After hitting a one-year low of $30.00 in January, the stock hit a one-year high of $55.38 earlier this month. HAL opened this morning at $48.23. So far today the stock has hit a low of $48.23 and a high of $50.08. As of 1:05, HAL is trading at $48.90, up $1.03 (2.1%). The chart for HAL looks bullish but deteriorating, while S&P gives the stock a positive 4 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $42.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.5% return in just five weeks as long as HAL is above $42.50 at August expiration. Halliburton would have to fall by more than 13% before we would start to lose money.
HAL hasn't been below $44 at all since April and has shown support around $45 recently. This trade could be risky if the price of oil drops off in the coming month, but even if that happens, this position could be protected by the support the stock might find around $45 where it formed a bottom in early May.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in HAL.
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.
CNNMoney reports that oil closed up a record $11 a barrel today -- closing at $138. Can $200 a barrel be far off?
As I posted, this record price spike could have something to do with speculators' fear that they will no longer be able to take advantage of the swaps loophole the gives them unlimited ability to control the oil market. Perhaps rumors that regulators will close the loophole are scaring speculators to buy up as much oil as they can before the loophole closes.
Or it could be a plunge in the dollar. As I posted, the European central banks are talking about raising interest rates further to fight inflation. But the Fed is only talking about inflation and not doing anything about it. The dollar has lost 70% of its value since January 2001. With oil trading in dollars, it's taking more and more of them to buy a barrel of oil.
After hitting a one-year low of $30.00 in January, the stock has hit a new one-year high today. HAL opened this morning at $49.74. So far today the stock has hit a low of $49.61 and a high of $51.12. As of 12:40, HAL is trading at $50.01, up 71 cents (1.4%). The chart for HAL looks bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $45 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 13.6% return in just six weeks as long as HAL is above $45 at July expiration. HAL would have to fall by more than 9% before we would start to lose money. Learn more about this type of trade here.
HAL hasn't been below $45 by more than a few cents since early April and has shown support around $48 recently. This trade could be risky if the price of oil heads lower, but even if that happens, this position could be protected by the support the stock might find around $45 where it formed a bottom over the past two months.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in HAL.
The Wall Street Journal also reported that the oil industry and some U.S. lawmakers are looking to end long-standing bans on domestic drilling put in place to protect areas that are environmentally-sensitive, fueled by concerns about global energy.
In an interview with the Financial Times, Citigroup Incorporated's (NYSE: C) former chairman and CEO Sandy Weill acknowledged that choosing Chuck Prince as his successor in 2003 turned out not to be the "right thing" for the company and was flawed. Instead of handing the job to Prince, Weill said the board should have fostered competition among the bank's top managers for the job.
OTHER PAPERS:
According to the Washington Post, MedImmune, a unit of drug giant AstraZeneca Plc (NYSE: AZN),settled with Genentech Inc (NYSE: DNA) a lawsuit over a patented component of its best-selling drug Synagis, which is aimed at preventing respiratory infections in infants. No details of the settlement were provided.
The Telegraph also reported that U.K.-based Imperial Tobacco Group Plc (NYSE: ITY) could conduct a GBP5B rights issue this week. The company has suggested that it needs the funds in order to retain its investment-grade credit rating following its acquisition of Altadis.
WEB SITES:
According toBloomberg, regulatory filings show that banks such as Citigroup Incorporated (NYSE: C) are failing to acknowledge at $35B of additional writedowns in their income statements.
The drug maker posted net income of $3.3 billion, or $1.52 per share, for the January-March period, up from $1.7 billion, or 78 cents a share, a year ago. Excluding one-time items, Merck earned 89 cents per share, beating by three cents the forecast of analysts surveyed by Thomson Financial.
Revenues totaled $5.82 billion, up 1% from $5.77 billion in the first three months of 2007, but below analysts' expectations of $6.11 billion. The company attributed the slow sales growth to the weak U.S. dollar.
Merck shares fell Monday 13 cents, to close at $39.63. Shares are down 23% in the past year.
MOST NOTEWORTHY: Semiconductors, ADC Telecomm and Nationwide Financial were today's noteworthy upgrades:
Banc of America upgraded the Semiconductor Sector to Overweight from Market Weight citing indications of a bottom given earnings estimate revision momentum and supply chain inventory levels. The firm upgraded Intel (NASDAQ:INTC), Power Integrations (NASDAQ:POWI) and Semtech (NASDAQ:SMTC) to Buy from Neutral and PMC Sierra (NASDAQ:PMCS) and LSI Corp (NYSE:LSI) to Neutral from Sell.
Deutsche Bank upgraded shares of ADC Telecomm (NASDAQ:ADCT) to Buy from Hold as they believe April consensus estimates could prove conservative.
UBS raised Nationwide Financial (NYSE::NFS) to Buy from Neutral and believes a higher offer by Nationwide Mutual is likely.
OTHER UPGRADES:
Halliburton (NYSE:HAL) was upgraded to Buy from Neutral at Goldman.
Westlate Chemical (NYSE:WLK) was raised to Overweight from Equal Weight at Morgan Stanley.
MOST NOTEWORTHY: Cott Corp, Hartford Financial, Allstate and Valero Energy were today's noteworthy upgrades:
Lehman upgraded Cott Corp (NYSE: COT) to Equal Weight from Underweight citing recent management changes, a focus on CSD business, and new product discipline.
Bernstein believes the entire non-life insurance group is oversold and that it is time to buy; the firm upgraded Hartford Financial (NYSE: HIG) and Allstate (NYSE: ALL) to Outperform from Market Perform.
Valero Energy (NYSE: VLO) was raised to Buy from Hold at Deutsche Bank on valuation with the stock trading at a -30% discount to NAV while the asset market for U.S. refineries is strong.
OTHER UPGRADES:
Goldman added Cisco (NASDAQ: CSCO) to its Conviction Buy List.
The president's concern struck me as odd because most folks having an IQ higher than their age would probably agree that President Bush overreacted in Iraq, and underreacted at home. Thus increasing the probability that we would fall into an economic quagmire that the best and brightest would have difficulty escaping.
I think I am being very generous when I say "increasing the probability" because many on the left and on the right of the political spectrum would be much more frank and say Dubya, you own this one pal!
That being said, one might argue that Bush has his rights and his lefts mixed up, as well as his rights and his wrongs. I happen to agree with the president that the federal government could overreact (and has) and do the wrong things -- with bipartisan support no doubt. For example I think the $156 billion tax rebate is very bad policy, not helping anyone and hurting everyone -- see Serious Money: Stimulate productivity not consumption. I hope anybody reading that particular Serious Money post finds it worthy of starting an e-mail storm because not enough folks understand this point.
For its quarterly profit, Halliburton posted a rise of nearly 5%. The press release claims "This increase was attributable to increased worldwide activity, particularly in the Eastern Hemisphere," where the company is placing greater resources. Halliburton said its profit climbed to $690 million, or 75 cents per share from $658 million, or 64 cents a share, during the same period a year ago. Included in the company's figures was $22 million after-tax charge related to the impairment in Bangladesh, and $8 million of after-tax expenses related to executive-separation costs.
Income from continuing operations in the fourth quarter of 2007 was $674 million, or $0.74 per diluted share, beating analysts expectations of earnings of 69 cents per share.
The company's results also show a respectable 19% jump in revenue to $4.2 billion, up from $3.5 billion a year earlier. Analysts had forecast $4.1 billion in revenue, according to Reuters Estimates.
Halliburton has met or beat earnings expectations in the past five quarters. When it reported third-quarter 2007 results back in October, its earnings per share of 66 cents beat the consensus estimate of analysts polled by Thomson Financial by two cents, as well as the actual 58 cents per share in the same period of the previous year. For the current quarter, analysts expect earnings of 69 cents per share, or $2.46 per share for the full year. That's up from $2.13 in 2006.
Halliburton's 60.7% earnings per share growth forecast for the next three to five years is well above the industry average and the S&P 500. The analysts' consensus recommendation is to buy Halliburton, with 8 of the 22 analysts considering it a strong buy. Shares have slipped from the 52-week high of $41.95 in October, and closed Friday at $33.09.
For Jim Cramer's take on Halliburton and other news that could influence the earnings results, see BloggingStocks' Halliburton coverage.
Halliburton (NYSE: HAL) shares are trading higher today after an analyst wrote in the Wall Street Journal over the weekend that despite rises in oil prices, many oil stocks and oil service companies are undervalued based on price/earnings ratios. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on HAL.
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Here are some highlights from this past week's 
Some good news: 
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My colleague 
Earnings preview for Ford
Apple shares rise on report Steve Jobs is free of cancer
Toyota whups GM in the first half of 2008
