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Excerpt from Raymond James strategist Jeffrey Saut's latest essay:

Yet another observation has us worried, that being the price action in crude oil.

...[W]e are recommending rebalancing energy positions in portfolios (read: selling partial positions to bring weightings back in-line with the portfolio’s original objectives). While longer-term we remain bullish on energy, crude oil is currently 37% above its 200-day moving average, a level that has historically suggested it is well overbought and due for a correction barring some unforeseen geopolitical event.

That said, we are increasingly bullish on the oilfield services complex, believing that the huge cash flows accruing to the exploration & production oil companies [E&P] will result in increased capex spending. Bolstering that view has been unusually bad weather in the Gulf of Mexico this spring, where high winds and choppy waters have curtailed contract awards. Over the past week ocean winds have “laid down,” however, and our sense is contract awards will start to flourish. We think this will make pleasant reading for oilfield services companies like Cal-Dive (NYSE:DVR) and Superior Energy (SPN/), both of which broke out to the upside in the charts last week.

As for the recent “financials fascination,” like the E&P complex we are currently shy of financials after their spectacular rally, driven by the belief that their problems are all in the rearview mirror. We don’t believe it; hello AIG (NYSE:AIG), whose Friday revelations shocked Wall Street participants. As repeatedly stated, we think that after 28 years of financial deregulation the financials are now being re-regulated, which implies a crimp in their profit margins with an attendant P/E multiple compression. And that, ladies and gentlemen, is why we have avoided the financials.

...[W]e remain opportunistic buyers of fundamentally sound, favorably rated, dividend yielding, hopefully non-economically sensitive situations on price weakness as they approach support levels in the charts. In past missives we have recommended names like 7.7%-yielding Alaska Communications (NASDAQ:ALSK), 6.3%-yielding Embarq (EQ), as well as Schering-Plough’s 8%-yielding convertible-preferred “B” shares (SGP+B); SGP is still favorably rated by our correspondent research affiliates, as is 3.8%-yielding GE (NYSE:GE).

And this morning we offer for your consideration, even though it is currently rated Market Perform by our fundamental analyst, 11%-yielding LINN Energy (NASDAQ:LINE) with a stop-loss point of $18.57, which is its recent reaction low. Additionally, the dry bulk shipping complex is worthy of consideration given the recent strengthening shipping surveys, and rising Baltic freight rates, which suggests emerging markets remain strong. Verily, our favorite “country play” over the past few years has been Brazil, whose bourse has broken out to the upside in the charts. Yet for bulk shipping ideas, we defer to our correspondent research affiliates along the lines of DryShips (NASDAQ:DRYS).

Source: Saut: Increasingly Bullish on E&P Oil Companies, Avoiding Financials