Taking Advantage Of Window Dressing (Part 1)

Includes: HAL, SLB, WFT
by: Bret Jensen

The end of the quarter offers numerous opportunities for contrarian investors. Window dressing drives stocks that have done well in the quarter to go higher as fund managers add these to their portfolios before quarter end reporting as on Wall Street it is as important to look "smart" as to be "smart." They also ditch poorly performing stocks to avoid having to show these quarterly losers on their position reports to investors. This provides an opportunity to pick up oversold stocks at quarter end that are long term bargains. One of the worst performing sectors during the quarter and especially during the last month is the oil services sector (See chart below). The shift from natural gas production to oil production has hurt the sector temporarily, but I believe they have overcorrected. Here are three stocks I expect to bounce back sharply in the 2nd quarter.

(Click to enlarge)

Weatherford International (NYSE:WFT)

4 reasons Weatherford is good long term bargain at $15 a share:

  • The median price target of the 25 analysts that cover the stock is $21 a share, some 40% above Weatherford's current price.
  • The stock has a dirt cheap five year projected PEG (.20) and is just 19% above book value.
  • The company is set for impressive revenue growth. Analysts have it growing sales in the mid-teens for both FY2012 and FY2013.
  • Although analysts have cut earnings estimates recently, WFT still shows rapidly increasing earnings projections. The company earned just 70 cents in FY2011, but analysts project it will almost double earnings to $1.38 in FY2012 and produce $1.89 in earnings in FY2013.

Halliburton (NYSE:HAL)

4 reasons Halliburton is a buy at just over $32 a share:

  • The stock is cheap at just over 7 times forward earnings and a five year projected PEG of .32.
  • After falling some 40% since its highs in the summer, the stock is selling near the bottom of its five year valuation range based on P/B, P/E, P/S and P/CF.
  • After making $3.36 a share in FY2011, HAL is expected to book $.3.84 a share of profit in FY2012 and analysts project $4.47 a share in FY2013.
  • The company has beat earnings estimates for four straight quarters and the median price target for the 27 analysts that cover the stock is $48 a share.

Schlumberger (NYSE:SLB)

4 reasons Schlumberger is solid buy at under $70 a share:

  • The stock is cheap at just over 12 times forward earnings and insiders have been net buyers of the shares over the prior six months.
  • S&P has a "Strong Buy" rating and a $97 price target on SLB and Credit Suisse has an "outperform" rating and a $92 price target on the stock.
  • Analysts expect low to mid-teens growth in revenues for both FY2012 and FY2013 as well as earnings growth of around 20% annually over those two years.
  • The stock is down more than 30% since its highs during the summer and now sells in the bottom third of its five year valuation range based on P/CF, P/S and P/B.

In a follow-up article, we will look at stocks that have been overbought through quarter end and are likely to sell off to begin the second quarter.

Disclosure: I am long WFT, HAL.