Seeking Alpha
Profile| Send Message|
( followers)  

Atwood Oceanics (NYSE:ATW) is an oil driller which now trades at 11x Sep 2008 earnings of $3.30 and 7x the estimate for 2009 ($5.32). However the market sees this as a vastly inferior stock to, say, companies that don't make any money but the hope is by 2010 they can. One day we'll look the charts and laugh that we sold this in the $36s... how outrageous. How stupid. That is the best time to buy, we'll say! But much like the financials 90 days ago, there is now relentless selling pressure and even if you "buy in" a few days too early from the ultimate bottom (I know because I took some major pain buying Ultra Financial (NYSEARCA:UYG) literally 2 days too early) you take a lot of pain.

Right now until these hedge funds completely get clocked, emptied out, closed down - whatever they need to do, fundamentals continue to not matter. Readers will know I've been typing that for many months now. Either we are trading on hopes/dreams (economic recovery in "6 months") or "guess what hedge fund is being forced to sell nonstop and which positions". I prefer not to trade on hopes that I do not believe in, nor can I guess when the hedge funds finally empty their holster. Even though I am quite clear that when we look back a year from now, we'll look at a chart and say "my gosh people were selling ABC fertilizer stock for 5x 09 estimates? This coal stock was sold at 4x 09?? Why?" And we'll forgot the current environment.

On a fundamental basis there are cheap stocks hanging out all over the place. Buying these cheap stocks only is losing us money day after day. So for now we'll trade the "dream stocks" (housing/retail) on pullbacks since all that matters in the market now is enough hedge funds chasing a sector, no matter how wrong the thesis. Just like they chased into technology 60-70 days and drove those stocks up for no good reason. So now they are doing in the hopes/dream stocks - because as we all know as gasoline drops and we get another $15 a week in our pockets, homes, autos, clothing, et al will start selling like hot cakes. But only in the U.S., as the rest of the world will be immune to the benefits of lower oil prices. So says HAL 9000.

We started Atwood Oceanics in October 2007 and once had a mighty gain. That gain had its teeth kicked in and we exit with a $2200 loss, selling our 1.2% position. It has now made a COMPLETE round trip from where it was a year ago. Oil was in the $60s/$70s when I bought it - now its a full 50% higher yet the stock is lower. As I hear Republicans throughout the land cheer "drill baby drill". This is the market of illogic. Until we can use logic on a sustained basis the market is simply unbuyable. Again, I repeat, we'll look back at the chart in 1 year and say "why the heck were you selling at $36??" Answer: If a stock can trade at 11x estimates for 30% growth, it can trade at 8x, or 5x, or 2x earnings for 30% growth. Once the hedge funds abandon you, I guess there is no hope in this market. Off to find another homebuilder to buy! :)

At some point in the next week or two, much like financials in 1st half 2008 I expect this complex to gain 15-20% in 2 days across the board. People will moan and say "why didn't I buy! It was so clear the bottom is in!" That is so easy to say in theory, but in reality unless you time it well, you will just be making up losses. It is very easy to forget the "reality" of the past 2 days when the stocks reverse and put on those huge oversold rallies.

And away we go... Pulte Homes (NYSE:PHM) or Toll Brothers (NYSE:TOL), come to papa!

PS: What do you get for $200 Billion, a move to socialism, dumping losses on taxpayers, and a huge potential increase in the federal deficit? A 0.1% net gain in the S&P in the past 36 hours. The government is trying to do its best to buy a rally but each iteration of bailout/surprise fed cuts/new Federal Reserve tactics is having less and less of an effect. Sort of like a drug addict ... each hit has less of an effect. Boo Yah.

Disclosure: Long Ultra Financial in fund; no personal position

Source: Why I'm Closing Atwood Oceanics