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  • Preliminary Examination of Investor Timing For Hurricane Investment Plays 44 comments
    Apr 25, 2010 5:15 PM | about stocks: DVR, SPN


    Modifications:
    May 12, 2010 - Added link to the current National Hurricane Center's tracking map.


    Explanation:

    While its almost impossible to time the total market, it might be possible to time a portion of the market if that portion of the market is subjected to predictable events that are known to impact specific stock pricing.

    Hurricane season starts on June 1 and ends on November 30.  As a consequence, you might expect certain kinds of stocks to be somewhat synchronized with the start and end of hurricane season.  In other words, is there any evidence that some investors time their market entry and exit points for hurricane impacted stocks.

    To examine this question I looked at two companies involved with support/ repair services of off-shore Oil platforms: Cal Dive International (NYSE:DVR) and Superior Energy Services (NYSE:SPN).  Both of these companies have exposure in the Gulf of Mexico so their earnings should be somewhat synchronized with the start and end of the hurricane season.

    I obtained three years (2007 - 2009) of average monthly stock prices from Yahoo for the two stocks. In order to control for year to year changes in valuation, I standardized the data (Z Scored) within year. I than averaged across the three years by month. As can be seen, the pattern of results is quite similar for the two different stocks.




    The chart clearly demonstrates a consistent seasonal effect. The size of that effect is substantial, consisting of a change of about 2.25 standard units. Investors appear to lead the on-set of the hurricane season by several months.  The two stocks are at their minimum in February and achieve their peak price in early May. A secondary peak price occurs in late August and early September just about in the middle of the hurricane season. After that, the price drops back down to a minimum at the end of the official hurricane season in November.

    Results suggest that investors wishing to maximize their returns on a hurricane play need to make their initial investments in February and sell sometime in May. 

    National Hurricane Center Tracking Map
    I got this from DoubleGuns.  It lets you track the path of Hurricanes. If a hurricane is targeting the gulf, that should be a stimulus to buy Hurricane related service companies

    www.nhc.noaa.gov/index.shtml



    Disclosure: I own both DVR and SPN

    Disclosure: DVR SPN
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Comments (44)
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  • lower98th
    , contributor
    Comments (1420) | Send Message
     
    Nice job!
    25 Apr 2010, 05:20 PM Reply Like
  • Mayascribe
    , contributor
    Comments (9596) | Send Message
     
    Great analysis, User! Have to keep this in mind for next year.
    25 Apr 2010, 07:05 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    Excellent piece of work User. Seems kind of counterintuitive buying hurricane stocks in FEB and selling in May just as hurricane season starts doesn't it?
    26 Apr 2010, 10:36 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5808) | Send Message
     
    Author’s reply » It sure does Robert... I did one analysis on SPN using 9 years of data... I got the same pattern...

     

    I was wondering if contracts for future services have something to do with it... the oil companies know they are likely going to need repair services during hurricane season... They also know that there are a limited amount of available resources to conduct the repair work. I wonder if the oil companies are paying, in advance, basically reserving these companies services in advance of hurricane season... kind of like insurance or a hedge play... As more oil companies do that, it would push the start of stronger earnings for the service companies more and more into advance of the start of the hurricane season...

     

    I suppose investment houses might have something to do with it as well.... They have to know about the seasonal pop in earnings, so they may have conducted this analysis in the past... the more investment houses that make the seasonal play, the greater the lead time needed to maximize their returns…
    26 Apr 2010, 11:05 AM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    Thanks for the work, User! I've listed (DVR) among my holdings since February 3, when I bought with every intention of either following the seasonality...

     

    OR keeping the position more long term, in recognition of my other idea behind buying (and in this case holding) oil patch support stocks...

     

    Geopolitical risk.

     

    Its not just hurricanes that damage oil rigs (obviously, given recent events), and the looming dangers in the Middle East makes this an interesting investment that has the same, broad-based growth pattern as the overall oil industry, PLUS the underlying fact that while good news will cause it to grow, so will bad news.
    26 Apr 2010, 01:49 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5808) | Send Message
     
    Author’s reply » You bought at what should be the low triple... nice play.
    26 Apr 2010, 02:33 PM Reply Like
  • tradermatt
    , contributor
    Comments (72) | Send Message
     
    Brilliant stuff, and great investing advice, thanks for sharing!
    26 Apr 2010, 05:11 PM Reply Like
  • Joseph L. Shaefer
    , contributor
    Comments (1502) | Send Message
     
    Having just read your comments about Cal Dive and Superior Energy's seasonal variations anticipating hurricane season, I am reminded of what Wm. Shakespeare said on the subject 400 years ago:

     

    “There is a tide in the affairs of men, Which taken at the flood, leads on to fortune. Omitted, all the voyage of their life is bound in shallows and in miseries.” Seasonality is real in the market, some sectors, and some securities...

     

    [Please excuse if this is posted twice. Just getting the hang of the Quick Chat starting today....]
    29 Apr 2010, 02:51 PM Reply Like
  • Mayascribe
    , contributor
    Comments (9596) | Send Message
     
    Welcome aboard, Joseph!

     

    We have a very interesting and potentially dire situation developing with this oil spill gushing for at least another 90 days. Horrible hurricane season approaching? This oil spill could be wind-driven beyond containment.

     

    Would not surprise me to see the sheen out the airplane window on my way to Honduras late next month.
    29 Apr 2010, 04:14 PM Reply Like
  • Joseph L. Shaefer
    , contributor
    Comments (1502) | Send Message
     
    Hello again, Mayascribe! That may be the most dangerous part of your journey //grins//. You have a great time down there. I have very fond memories of my time in Honduras, especially jumping off from La Cieba to an offshore island (Guanaja) for a week of some of the most sublime SCUBA and snorkeling ever.
    29 Apr 2010, 04:21 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5808) | Send Message
     
    Author’s reply » Welcome Joseph! The Quick Chats serve as the Renegades daily center of communications... Another one of our on-going publications is The Swine Flu News Concentrator. These summarize news related to Swine Flu investments.

     

    I hope you find the information and discussions as valuable as I have…
    29 Apr 2010, 05:41 PM Reply Like
  • Joseph L. Shaefer
    , contributor
    Comments (1502) | Send Message
     
    Thank you, User. It's been illuminating and stimulating already!

     

    I might qualify as a Renegade -- at least in SA's eyes. I refused to take part in the new 2010 methodology whereby SA awards 20 "followers" to selected authors when a new reader signs on with SA. I figured it should be the reader's choice, not SA's or anyone else's. Of course, that decision slid me from Top 10 to somewhere between Lowest Obscurity and Highest Oblivion! Since no one seemed to care that the new system seemed inherently unfair, I just told SA it's their site, so they can include me in the program or not as they choose. Still, I'm guessing I'm on The Renegade List for good...
    29 Apr 2010, 06:33 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    Welcome aboard sir. Seems like the spell check has checked out for the time being.
    29 Apr 2010, 07:04 PM Reply Like
  • Mayascribe
    , contributor
    Comments (9596) | Send Message
     
    Joseph: I've been fortuitous to have spent a few weeks during separate trips to Roatan. At night the waters off West Bay Beach are so calm the waves would not lap over your sandal sole. One of my favorite nights in my life was when I dragged a beach chair and a bottle of Ron Zacapa Centenalia 23 rum down waterside and communed with the full moon far into the night. The moon was so bright you could barely look at it for more than five or six seconds. Only four garafuna's walked by, and one couple did it in the sea.

     

    Great scuba diving in Roatan, too. And cheap!

     

    Never made it over to Guanaja, but I hear it is near pristine, and far, far removed. That island is where Columbus said he drank the sweetest water in his well-traveled life.
    29 Apr 2010, 04:37 PM Reply Like
  • Joseph L. Shaefer
    , contributor
    Comments (1502) | Send Message
     
    It is a small world, Maya, that we may have crossed paths on previous adventures but only came to discuss them at SA. In places less filled with artificial night-time illumination like Roatan, Patagonia and northern Norway -- or even the high wilderness country in the Sierras -- the stars are so bright at night that they can wake you from your sleep. And I remember the moon you describe, as well -- bright enough that we could turn off our flashlights at 40 feet and still have enough light to see each other 20 feet away. It's a small world in some ways but a big, wonderful world out there in so many other ways!
    29 Apr 2010, 05:05 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    Program purchase of (DVR) @ $6.80 was triggered. There may be more down side for another purchase.
    29 Apr 2010, 05:14 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5808) | Send Message
     
    Author’s reply » One of the stocks for the Hurricane play was (SPN). Superior Energy Services, Inc. provides specialized oilfield services and equipment to serve the production and drilling related needs of oil and gas companies. The company operates through three segments: Subsea and Well Enhancement, Drilling Products and Services, and Marine.

     

    The Subsea and Well Enhancement provides various services, including coiled tubing, electric line, pumping and stimulation, gas lift, well control, snubbing, recompletion, engineering and well evaluation, offshore oil and gas tank and vessel cleaning, decommissioning, plug and abandonment, and mechanical wireline services. It provides mechanical wireline services in the Gulf of Mexico. This segment also manufactures and sells drilling rig instrumentation equipment.

     

    The Drilling Products and Services segment manufactures, sells, and rents equipment for use with offshore and onshore oil and gas well drilling, completion, production, and workover activities in Latin America, North America, the North Sea region, Continental Europe, the Middle East, Central Asia, West Africa, and the Asia Pacific region.

     

    The Marine segment owns and operates a fleet of liftboats in the Gulf of Mexico and the Caribbean. As of December 31, 2009, it operated a fleet of 26 rental liftboats. The company was founded in 1991 and is based in New Orleans, Louisiana.

     

    __________________
    SPN is in the right place with the right equiptment and services at the right time with respect to the BP blowout in the Gulf.

     

    SPN is up 9.9% today…

     

    I suspect (DVR) is going to get some of this business as well…..
    29 Apr 2010, 05:39 PM Reply Like
  • Mayascribe
    , contributor
    Comments (9596) | Send Message
     
    Thanks, User!
    29 Apr 2010, 06:10 PM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    (DVR) is down at the moment because of last quarter's slump, but ironically the financial news overlays dramatic evidence of the situation in the Gulf.

     

    I remember discussing a similar situation with some folks years ago regarding Halliburton and Iraq.
    29 Apr 2010, 11:07 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    User: Greetings. I'm putting on a program for another block of (DVR) @ $6.50 for market open Monday.
    30 Apr 2010, 04:58 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5808) | Send Message
     
    Author’s reply » I was just looking at that Robert... its very close to its February low. So buying now makes up for being late into the seasonal move .... I will also be buying between 6.50 and 6.70.

     

    I just hope those troubled first quarter earnings don't reflect something functionally wrong with the company.
    30 Apr 2010, 05:12 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    Should team Obama succeed in shutting down all drilling in the Gulf, as I'm sure they plan to do, will Cal Dive (DVR) be involved in capping the well heads?
    30 Apr 2010, 06:15 PM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    Amazing new avatar, User!

     

    2 May 2010, 11:19 AM Reply Like
  • boatfund
    , contributor
    Comments (17) | Send Message
     
    Cool insight. I wonder if three years 07, 08, and 09 provide enough data for strong statistical results. Also, I wonder how important that historical trend will be in light of large business factors including DVR's growing backlog and active project bidding process which management expressed would be ramping up over the remainder of 2010, seems like those announcements might be the catalysts with the potential to buck the trend shown in the data. We'll have to see.
    11 May 2010, 10:40 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    boatfund: Greetings. (DVR) is at a low and IMHO presents a buying opportunity if you plan to hold for a substantial time frame.
    12 May 2010, 09:33 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5808) | Send Message
     
    Author’s reply » Hi Boatfund
    Good point on the methodology... I will be expanding the amount of data on the play as well as the number of stocks... that's why I titled the article 'preliminary'... I needed to get the results out because I was surprised by the early timing requirement for the investment ...

     

    I believe this year will be different due to the BP spill. I suspect that will delay the timing of the play, but that story is still working out. I also suspect that the Government is going to get more involved in the safety of off-shore drilling.... I suspect off-shore drillers are going to need to increase their access to damage control, resources. That could should act to inflate these off shore drilling support companies balance sheets. The hearings are probably going to act as a stimulus for change... so we need to keep our eyes open while thinking about how those changes will affect the balance sheets of different companies. Again, thanks for you comment...

     

    I totally agree Robert... this is a very good entrance point for DVR.
    12 May 2010, 10:24 AM Reply Like
  • doubleguns
    , contributor
    Comments (7899) | Send Message
     
    www.nhc.noaa.gov/index...

     

    USER you can add this to the top of the chat. It is the national hurrican weather center website. Fun to track with.
    12 May 2010, 10:30 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5808) | Send Message
     
    Author’s reply » Hey, that's great Guns... I am adding it now...
    12 May 2010, 10:44 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5808) | Send Message
     
    Author’s reply » Here is a complete list of my current Hurricane/ Oil Spill Cleanup investment play: (SPN) (DVR) (CLH) (FUEL) (TTI) (NLC)
    12 May 2010, 10:56 AM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    Note that (DVR) is staging something of a comeback...
    12 May 2010, 11:13 AM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    TB: Greetings. I'm adding and holding until next may before I sell and go away. Once it goes long term for tax purposes and IMHO enhanced ROI.
    12 May 2010, 12:45 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5808) | Send Message
     
    Author’s reply » (May 27) Very Severe Hurricane Season Ahead, Say Top Meteorologists From: Fox News

     

    The National Oceanic and Atmospheric Administration
    (NOAA) has issued its 2010 hurricane season forecast, predicting one of the strongest seasons on record.

     

    NOAA's forecast predicts as many as 23 named storms during the Atlantic hurricane season, with 3 to 7 becoming serious enough to be classified as major hurricanes. Named storms come with top winds of 39 mph or higher. The agency worries that as many as 14 could turn into hurricanes, with winds in excess of 74 mph, and 3 to 7 could be category 3, 4, or 5 storms with winds of at least 111 mph.

     

    “If this outlook holds true, this season could be one of the more active on record,” said Jane Lubchenco, Ph.D., under secretary of commerce for oceans and atmosphere and NOAA administrator. “The greater likelihood of storms brings an increased risk of a landfall. In short, we urge everyone to be prepared.”

     

    "It's going to be a bigger than average hurricane season and it's going to start sooner," Accuweather's Joe Bastardi told FoxNews.com in early May. And Colorado State University meteorologists Philip Klotzbach and William Gray also predict rough weather in their extended-range hurricane forecast.

     

    tinyurl.com/34jhh7l
    27 May 2010, 11:52 AM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    User: Greetings. There is much speculation that a large storm in the right (Wrong?) trajectory could push the spilled oil farther inland than would normally occur, complicating clean up measures. Do we have a handle on any companies that would be involved in that aspect of the clean up?
    27 May 2010, 01:04 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5808) | Send Message
     
    Author’s reply » Hi Robert - Right now we have (SPN) (DVR) (CLH) (FUEL) (TTI) (NLC) I currently own (SPN) (DVR) and (CLH).

     

    Some of these do emergency service to the rigs and undersea piping, (CLH) is a general cleanup company, and NLC sells chemicals to disperse oil…

     

    Another group of companies that might enter into the picture are the big engineering companies (JEC) (FLR), maby (MDR)... These companies could be contacted to repair infrastructure perhaps by managing local contractors.

     

    I am always looking to add more companies...
    27 May 2010, 01:20 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    User: Greetings. Thank you for the information sir. While I'm currently out of dry powder and only holding (DVR) I am going to look into some of these while I watch from the Jacuzzi and accumulate cash.
    27 May 2010, 01:47 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5808) | Send Message
     
    Author’s reply » [This quantifies the ability of Hurricane's to disrupt the seabed, and to rupture in place pipelines on the seafloor. ]

     

    (May 27) Hurricanes could rupture underwater oil and natural gas pipelines in the Gulf of Mexico, which is already struggling with the worst oil spill in U.S. history, according to a new study by researchers at the U.S. Naval Research Laboratory in Mississippi.
    From: Reuters by Erwin Seba; Editing by John Picinich

     

    The study looked at the effects from 2004's Hurricane Ivan, which disrupted several underwater pipelines in the eastern Gulf of Mexico.

     

    Disruption of the seafloor can reach depths of 300 feet from destructive currents, which can continue for up to a week after the hurricane passes, the researchers found.

     

    "It doesn't go away, even after the hurricane passes," said Hemantha Wijesekara, lead author of the study, according to a statement issued by American Geophysical Union, which will publish the study's results on June 10.

     

    Hurricane Ivan damaged or destroyed 22 platforms, some of which had been set adrift by the September 2004 storm.

     

    The storm also damaged and disrupted 13 undersea oil and natural gas pipelines triggering an oil spill on the Louisiana coast an cutting Gulf's production of gas for weeks.
    tinyurl.com/32k4k7x
    27 May 2010, 04:42 PM Reply Like
  • Mayascribe
    , contributor
    Comments (9596) | Send Message
     
    What's not being addressed by the MSM anywhere (that I have seen)is when a voxtex of 150 MPH+ whisks up surface oil up and spreads a fine slick over inland farmlands.

     

    Plants make oil. Oil kills plants.

     

    This is another possible catasrophe in waiting.
    27 May 2010, 01:58 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5808) | Send Message
     
    Author’s reply » Ohhh... I never thought of that... I will look into that over the weekend Maya... thanks :>)
    27 May 2010, 02:19 PM Reply Like
  • Mayascribe
    , contributor
    Comments (9596) | Send Message
     
    Parting gift!
    27 May 2010, 02:28 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    Should that happen the Mississippi delta catfish, crayfish and prawn farms would also be negatively impacted IMHO.
    27 May 2010, 02:37 PM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (11024) | Send Message
     
    Actually hurricane season is expected to be mild thanks to northern Hemisphere cooling due to the Iceland eruption that goes on and on. When Mt. Saint Helen's blew it cooled the northern hemisphere for a couple years.

     

    Thank goodness because a major hurricane would make an awful mess of the clean up efforts. BTW, rather than try to save the environment BP, the President, and all the fools are trying to save the well. It's a well known fact that if they filled the hole with concrete it would have stopped the leak but sealed the well (no more oil from that hole).

     

    The funny thing is, dumping concrete to seal the hole is the back up plan which they know will work. Some people's heads should roll. I hope BP and Halliburton (the one that gave you electrocuting Iraq showers and asbestos) are bankrupted by this.
    27 May 2010, 09:20 PM Reply Like
  • Mayascribe
    , contributor
    Comments (9596) | Send Message
     
    Moon: I remember that effect with Mt. Saint Helens. What I'm not sure about is if the prevailing winds will keep the "shroud" north of the Carribean. Typically, and I'm far from an expert on the effects of doldrums and trade winds, is that earlier in the Hurricane season, the winds whip off the eastern African coast, across the Atlantic and then upward through the Carribean. It's later in the season when hurricanes tend to go lateral and slam Mexico and the Central Americas.

     

    Same goes for typhoons in the Pacific.

     

    However, and generally, as you suggested, the tradewinds do move out of the northeast this time of year, so you may indeed be correct.

     

    Up there in Iceland country, the winds generally move west to east This means that the dirtied air will have to sweep all the way around the planet likely many times before the ash laidened skies get far enough south to cool the already warmer than normal Carribean waters.

     

    One thought though, is that the oil slick could have a dimming effect, much like what occurs around major population centers. The dimming effect was learned after 9-11 when studies showed that major population centers were cooler during the night and warmer during the day because no airlplanes were in the sky.

     

    Will make for some pretty sunsets.
    27 May 2010, 09:48 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5808) | Send Message
     
    Author’s reply » Here is the latest update on the number of projected Hurricanes...

     

    (June 2) Researchers up 2010 forecast to 10 Atlantic hurricanes
    From: Reuters by Pascal Fletcher, Editing by Vicki Allen

     

    The 2010 Atlantic hurricane season is likely to produce 10 hurricanes, five of them major, the Colorado State University [CSU] hurricane forecasting team said on Wednesday, increasing a previous estimate for a "very active" season.

     

    The leading storm research team founded by hurricane forecast pioneer William Gray said there was a 76 percent probability of a major hurricane making landfall along the U.S. coast, whether the U.S. East Coast or the Gulf Coast, compared with the last-century average of 52 percent.

     

    The CSU team saw a 51 percent chance that a major hurricane would make landfall on the U.S. East Coast, including the Florida Peninsula, and a 51 percent chance that one would hit the Gulf Coast, from the Florida Panhandle to Brownsville, Texas.

     

    The CSU team said the six-month season beginning on June 1 would likely see 18 named tropical storms.

     

    The scientists increased their forecast from an April 7 prediction of 15 named storms, eight hurricanes and four major hurricanes.

     

    "We have increased our forecast from early April, due to a combination of a transition from El Nino to current neutral conditions and the continuation of unusually warm tropical Atlantic sea surface temperatures," Gray said in a statement detailing expected weather and sea conditions that will favor hurricane formation.

     

    "We anticipate a well above-average probability of United States and Caribbean major hurricane landfall," he added.

     

    The extreme hurricane season this year is seen posing a particular threat to ongoing efforts to contain and clean up the massive oil spill in the Gulf of Mexico, and also to around 1.5 million homeless survivors of Haiti's January 12 earthquake who are camping out in the streets under tents and tarpaulins.
    tinyurl.com/22sbu87
    2 Jun 2010, 12:14 PM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    Gray's track record with his predictions is horrible. Of course, its also possible that he will hit a home run this year...
    2 Jun 2010, 02:05 PM Reply Like
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