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In this article, via an analysis based on the latest available Q4 institutional 13-F filings, we identify the oil & gas drilling services companies that are being accumulated and those being distributed by the world's largest fund managers. These mega managers, managing between $50 billion and over $700 billion in 13-F assets, control over 35% of the assets invested in the U.S. equity markets, but number just over 30 out of the tens of thousands of funds that invest in the U.S. equity markets. Taken together, they are bullish on the group, adding a net $184 million in Q4 to their $21.63 billion prior quarter holdings in the group.

The following are the oil & gas drilling services companies that these mega fund managers are most bullish about, that are undervalued relative to the peers in their group, that have a high revenue and earnings growth rate, and that have outperformed the average stock in the group, as represented by the Oil Services ETF ($OIH) that is about flat for the year:

Noble Corp. (NE): NE is a Swiss company engaged in offshore contract drilling services for the oil and gas industry worldwide. Mega funds together added a net $35 million in Q4 to their $3.30 billion prior quarter position in the company, and taken together mega funds hold 36.8% of the outstanding shares. The top buyer was Wellington Management, with $254 billion in 13-F assets ($53 million), and the top holders were Franklin Resources ($542 million) and mutual fund powerhouse Fidelity Investments ($502 million).

NE reported its Q1 (March) three weeks ago, with revenues coming in-line, and earnings beating analyst estimates (47c v/s 42c), and with both numbers being up strongly year-over-year at 38% and 213% respectively. Furthermore, analysts are projecting strong growth for the current fiscal year, with revenues rising from $2.70 billion in 2011 to $3.71 billion in 2012, and earnings more than doubling from $1.30 in 2011 to $2.78 in 2012, and on to $4.31 in 2013. The shares are up about 17% YTD v/s the flattish performance for the average stock in the drilling group, and they currently trade at 8-9 forward P/E and 1.2 P/B compared to averages of 11.1 and 1.4 for its peers in the oil & gas drilling group.

Rowan Co. Inc. (RDC): RDC is a provider of offshore contract drilling services to the oil & natural gas industry, both domestic and international. Mega funds together added a net $31 million in Q4 to their $1.24 billion prior quarter position in the company, and taken together mega funds hold 31.2% of the outstanding shares. The top buyers were Neuberger Berman Group ($33 million) and Atlanta-based investment powerhouse INVESCO Ltd., with over $650 billion in assets under management ($32 million), and the top holders were Fidelity Investments ($252 million), Vanguard Group, with $1.6 trillion in assets under management ($215 million), and State Street Corp., with $565 billion in 13-F assets ($199 million).

RDC reported its Q1 (March) last week, on Wednesday, beating analyst revenue estimates ($334 million v/s $315 million). Revenue for the quarter was up 62% year-over-year, and earnings at 47c were up 124% year-over-year. Furthermore, analysts are projecting strong growth for the current fiscal year, with revenues rising from $939 million in 2011 to $1.39 billion in 2012, and earnings more than doubling from $1.16 in 2011 to $2.53 in 2012, and on to $3.97 in 2013. The shares are up about 6% YTD v/s the flattish performance for the average stock in the drilling group, and they currently trade at 8-9 forward P/E and 0.9 P/B compared to averages of 11.1 and 1.4 for its peers in the oil & gas drilling group.

The following are some additional oil & gas drilling services companies that mega fund managers accumulated in Q4 (see Table):

  • Seadrill Ltd. (SDRL), an offshore drilling contractor, providing offshore drilling services to the oil & gas industries worldwide, in which mega funds together added a net $330 million in Q4 to their $852 million prior quarter position in the company;
  • Key Energy Services Inc. (KEG), an on-shore rig-based well services provider to oil & gas companies in the U.S. and internationally, in which mega funds together added a net $45 million in Q4 to their $447 million prior quarter position in the company;
  • offshore contract drilling services company Ensco Plc (ESV), in which mega funds together added a net $10 million in Q4 to their $3.42 billion prior quarter position in the company; and
  • Nabors Industries Ltd. (NBR), that is a provider of oil, gas, geothermal and land drilling, land well and work-over services worldwide, in which mega funds together added a net $6 million in Q4 to their $1.36 billion prior quarter position in the company.

Besides these, mega fund managers based on their Q4 trading activity indicated that they are bearish on the following oil & gas drilling services companies:

  • Transocean Ltd. (RIG), a provider of offshore contract drilling for oil and gas wells worldwide, in which mega funds together cut a net $421 million in Q4 from their $3.27 billion prior quarter position;
  • Patterson-UTI Energy Inc. (PTEN), that provides onshore contract drilling services to oil and natural gas operators in the U.S. and western Canada, in which mega funds together cut a net $9 million in Q4 from their $595 million prior quarter position; and
  • Hercules Offshore Inc. (HERO), that provides shallow-water drilling and marine services to the oil & natural gas exploration and production industry worldwide, in which mega funds together cut a net $4 million in Q4 from their $130 million prior quarter position.

Table

(click to enlarge)

Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: Top 2 Undervalued Outperforming High Growth Oil And Gas Drilling Services Picks By Mega Funds