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Everyone likes to think that stock prices move up and down based on value, growth outlook, etc. The truth is often that stock prices reflect market psychology more than fundamentals in the short term. In the longer term, the fundamentals almost always win out.

The world economic growth estimates have been cut back by a number of entities recently. With this predicted slowing, commodities are getting hit. Even oil has retreated a bit, although WTI is still $84+ at the time of this writing. This in turn is hurting the outlook of all the companies involved in the oil space. Some likely deserve to be hurt a because their profits are directly dependent on the price of oil. Others, often with high Betas, have been pushed down due more to market psychology than due to drastically falling growth prospects. Some, such as the land oil service companies, will most likely remain relatively unaffected by an economic slowdown until the price of oil falls below the $50-$60 per barrel range. Oil companies can still make a profit from drilling these wells in such prolific fields as the Bakken and Eagle Ford at that level. Plus the E&P companies know that the price of oil will go back up. The world supply and demand outlook for many years into the future is extremely bullish. The EIA chart of expected oil prices is below.

(Click charts to enlarge)

Market psychology does not work logically. It works mostly on emotion. Market psychology has pushed down the share prices of even the best of the land oil services companies. The earnings estimates of many of the land oil services companies in these last three months of market upset have gone up and not down. Then why are these stocks going down? There is no good reason. Fundamentals are good to great. They will win out in the long run. One cannot guarantee the near-term performance one way or another. However, the oversold and under valued condition of these stocks in the short term makes them great long-term buys at this point in time. Some of the companies that fit this description are: Halliburton Company (HAL), Baker Hughes Inc. (BHI), Schlumberger Limited (SLB), National Oilwell Varco Inc. (NOV), Cameron International Corp. (CAM), and Nabors Industries Ltd. (NBR).

Some of the financial fundamental data for these stocks is in the table below. The data are from TDameritrade and Yahoo Finance.

Stock

HAL

BHI

SLB

NOV

CAM

NBR

Price

$35.09

$54.33

$65.15

$58.04

$47.58

$15.63

1 yr Analysts’ Target price

$69.76

$95.73

$111.55

$97.71

$68.40

$33.02

Predicted % Gain

99%

76%

71%

68%

44%

111%

PE

13.39

18.06

17.27

14.09

20.80

15.95

FPE

7.70

9.10

11.91

10.15

12.69

6.13

Avg. Analysts’ Opinion

1.6

1.9

1.8

1.6

1.8

2.2

Miss Or Beat Amount For Last Quarter

+$0.07

+$0.02

+$0.02

+$0.13

+$0.02

-$0.01

FY2012 EPS Estimate

$4.55

$5.94

$5.47

$5.72

$3.75

$2.55

FY2012 EPS Estimate 90 days ago

$3.84

$5.37

$5.12

$5.25

$3.45

$2.47

EPS % Growth Estimate for 2011

62.10%

95.90%

33.20%

9.00%

10.30%

31.00%

EPS % Growth Estimate for 2012

36.20%

36.60%

43.20%

28.30%

40.40%

72.30%

5 yr. EPS Growth Estimate per annum

25.03%

29.65%

17.32%

15.43%

15.13%

22.00%

Market Cap

$32.27B

$23.70B

$87.91B

$24.59B

$11.66B

$4.49B

Enterprise Value

$36.86B

$27.91B

$98.13B

$23.21B

$12.32B

$8.42B

Beta

1.62

1.57

1.38

1.58

1.58

1.92

Total Cash per share (mrq)

$2.05

$2.15

$3.66

$8.12

$8.34

$2.34

Price/Book

2.99

1.68

2.94

1.56

2.62

0.85

Price/Cash Flow

9.69

9.76

12.05

11.60

16.24

4.58

Short Interest as a % of Float

2.67%

1.97%

1.63%

2.46%

3.08%

2.57%

Total Debt/Total Capital (mrq)

24.70%

19.19%

22.97%

2.95%

29.19%

42.64%

Quick Ratio (mrq)

2.31

2.08

1.26

1.76

1.51

2.30

Interest Coverage (mrq)

18.43

11.43

22.71

--

9.48

2.62

Return on Equity (ttm)

22.49%

9.22%

18.75%

10.99%

13.20%

3.13%

EPS Growth (mrq)

53.88%

231.08%

20.97%

18.26%

12.95%

51.57%

EPS Growth (ttm)

95.09%

175.08%

58.82%

7.33%

16.27%

39.60%

Revenue Growth (mrq)

35.29%

40.52%

61.16%

19.45%

19.85%

50.27%

Revenue Growth (ttm)

36.44%

68.04%

55.39%

5.31%

19.69%

55.46%

Annual Dividend Rate

$0.36 (0.90%)

$0.60 (1.00%)

$1.00 (1.40%)

$0.44 (0.70%)

N/A

N/A

Gross Profit Margin (ttm)

19.14%

22.19%

23.62%

34.21%

30.30%

39.60%

Operating Profit Margin (ttm)

17.93%

12.52%

16.85%

19.76%

11.06%

3.96%

Net Profit Margin (ttm)

11.24%

7.41%

13.57%

13.43%

8.68%

3.34%


All of the above look like great bargain, although some are better bargains than others. NBR may at first appear to be the biggest bargain with its largest predicted percentage gain, but its Net Profit Margin of only 3.34% makes it a much riskier proposition than HAL with a Net Profit Margin of 11.24%. Still all are good investments with 5-year percentage EPS Growth rates per annum of 15%+. HAL and BHI are the stars in the growth category with 5-year rates of 25%+. They are probably the best buys, although Patterson-UTI Enery (PTEN) should probably be included.

The charts of these stocks may give technical direction to add to the fundamentals. The one year charts are below:

The one-year chart of HAL:



The one-year chart of BHI:



The one-year chart of SLB:



The one-year chart of NOV:



The one-year chart of CAM:



The one-year chart of NBR:




Most of the above are at or below their lower Bollinger Band. All are at or near oversold levels on their Slow Stochastics sub charts. All of their 50-day SMA's are below their 200-day SMAs. Yet these are fundamentally strong stocks. In the case of HAL and BHI they are extremely fundamentally strong. They should go up substantially from here.

According to the latest EIA short-term forecast for oil prices, oil prices are expected to be flat to up for the rest of this year and the next. There is no reason to expect the earnings of the above companies to fall, especially with the plethora of new oil shale oil fields. You should have noticed that for each of the stocks the FY2012 earnings estimate has increased significantly in the last 90 days.

These fields require drilling and usual completion. Additonally they require fracking services. Many are just beginning to be developed. The Utica Shale is an excellent example. It has had less than 50 wells drilled so far. The eventual number will be over 10,000. The Bakken and the Eagle Ford are still in their early stages. There are many more fields. There are huge numbers of wells to drill and complete. Many rigs are now working 24 hours per day. There are more oil shale fields to be discovered and proved. These companies are going to grow for many years into the future. They are going to make huge profits. An economic downturn is more likely to prevent new competition from entering the workspace than it is to hurt these businesss. In addition to the huge amount of expected business, these companies often have long-term contracts. These contracts should provide added security during any economic slowdown. These companies are big long-term buys.

The US needs to get out from under its oil trade deficit. It will keep working toward that even in a downturn. Having less capital leave the US economy to pay for foreign oil will help the US recover from any downturn. Even Obama knows continued development of these fields is tremendously important to US economic health. There is little risk of a long-term down move in the stock prices of these companies. The fundamentals are too strong.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HAL, BHI, NBR, SLB over the next 72 hours.

Source: Market Psychology Sometimes Creates Bargains Like These