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As I wrote Tuesday during my discussion of the sale in CGG Veritas (CGV) the action in the oil services area is quite putrid. I wrote:


Well I have to say the reaction in the oil services today to a measly $2 drop in oil is spooking me. This along with my thesis that oil could go meaningfully down has me thinking on how to reduce exposure there. While I still like the oil services names for the longer term the market is irrational right now and even the best stocks with great fundamentals and backlogs are getting punished so I am simply looking for a candidate to cull.

I've held three oil service names since the fund's inception, National Oilwell Varco (NYSE:NOV), FMC Technologies (NYSE:FTI), and Core Laboratories (NYSE:CLB) - in good times I cut them back, and in weaker times I add. This is essentially how I try to run the overall fund. I believe my current holdings in this subsector is the lowest allocation I've had since August. These companies are far less secular than typical oil service names but right now seem to really be weakening. Even yesterday in a nice rally, Core Laboratories for example is down 3%. Back in late October the company reported "solid" earnings (nothing spectacular) [Core Laboratories Earnings Solid] but the stock preceded to rally from $130 to $155. I wrote:


Solid if not spectacular earnings from Core Laboratories (CLB) - all they do is continue to execute, and this stock is so sleepy they don't even put out an official press release, just direct you to their SEC filing. In a word, a bit light on revenue $170 vs $173M analyst, a bit higher on earnings $1.29 vs $1.26 analysts, nice margin increases, solid guidance and we're probably looking at $6.00+ on 2008 estimates so I will target a $160-$170 price in 12 months. From these levels thats not a huge gain, but 30% in a year never hurt anyone.


Since my target for 2008 was around $160-$170, I was cutting quite heavily into that rally. I did not catch the top but sold quite a bit in the $140s, topping out at $148. I wrote:

Hopefully the market will push down this stock at some point (it gave us a nice entry at $120 just the other day) and get us a lower entry in the $100s or $110s to build the position. The stock has tacked on 30% since the August lows, so to ask for much more at this time is being greedy - it needs to rest up a bit.

So now it appears we are getting this type of action and with the stock of Core Laboratories around $114 its starting to get more interesting to me. Unfortunately it is in a bit of a free fall so catching a falling knife is not what one wants to do, but I added my first (small) buy today (25 whopping shares) in a long time here under $115. But since the price action is so poor I am in no rush to increase further until the stock stabilizes.

The 200 day moving average is around $107 so let's see how the stock reacts there; right now the chart is showing very sickly action. If it holds, this would be a very attractive entry point; if not and it slides through than this might be signaling some bigger issues. Again even with crude at $65 the services of companies like Core Laboratories will be in need. If I can get back shares I sold in the $140s here in the $100s to $110s that would indeed be a nice trade off (assuming the stock can hold its support levels of course!)

On 2008 estimates of $6.10 the stock was trading at nearly 25x forward estimates when it hit $150. Here at $115 area it is down to under 19x. Much more attractive of a valuation for this steady Eddie company.

Disclosure: Long Core Laboratories, National Oilwell Varco, and FMC Technologies in fund; no personal positions

Source: Core Lab's Lackluster Action Creates Ideal Entry Point