John D. Thomason's  Instablog

John D. Thomason
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I am a retired (as of September 2001) IT manager. While I have always followed the markets, during my IT career my market research time was limited. Upon retiring, I have focused full-time on the markets and my own market education and growth. I have evolved my investment/trading strategy over... More
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  • Upgrades/Downgrades Of Interest On International Oil Majors 0 comments
    Mar 9, 2012 9:47 AM

    There were some interesting upgrades/downgrades announced this morning, March 9, 2012, on three well-known international major integrated oils. The following comments were lifted from my Daily Blog, available on my website, to be published here as an Instablog, in that it may prove interesting to the SA readership.

    Royal Dutch Shell (RDS.A, RDS.B) was downgraded from OutPerform to Market Perform at Bernstein, citing valuation. That means there is nothing wrong with the company, it is just that the shares have been bid up beyond what it is worth, in their view. I can't argue too much with that - the stock closed yesterday at $73.42, while my buy-under price is $60.00.

    Now comes the interesting stuff. ENI S P A ADR (NYSE:E), the Italian integrated oil company, was upgraded from Buy - yes, that's right, upgraded - to Conviction Buy, at Goldman, citing valuation, profit growth, and superior exploration. Yet, E was downgraded from OutPerform to Market Perform at Bernstein, citing valuation. Evidently these firms are using different valuation yardsticks. E closed yesterday at $46.04. My buy-under price is $38.00, so you would think I would be more in agreement with Bernstein's view. But don't forget, I have conceded my buy-under prices are out-of-date, and I am in the process of reviewing all of my recommended stocks, to see which buy-under prices are too low. If E is over-valued, it is not as over-valued as the U.S. majors, such as Chevron (NYSE:CVX), Exxon (NYSE:XOM), and ConocoPhillips (NYSE:COP). E pays semi-annually, and the first dividend of 2012 should be coming along in the next two months.

    Another interesting contrast in ratings was shown in two new ratings for Statoil (NYSE:STO), the Norwegian integrated oil company. STO was upgraded from Hold to Buy at Deutsche Bank, and was downgraded from Neutral to Sell by Goldman. No details as to what was behind the ratings changes were provided in either case, at least as per my source, MarketWatch. I will concede STO has been bid up lately, approaching it's 52 week high, closing at $28.68 yesterday, while my buy-under price is $20.00, which I will likely be raising soon. Also, remember that STO only pays annually, and the next annual dividend is only a couple of months away. I own STO, and I would probably consider selling to take advantage of the price run-up, except that I don't want to miss the next dividend.

    I suppose it should be some consolation to the struggling individual investor that even the "experts" can't agree on whether a stock is a buy, conviction buy, perform, hold, sell, or whatever.

    Disclosure: I am long E, STO.

    Additional disclosure: I originally bought into E and STO because I believed they presented better values than the U.S. international oil majors, and based on prices today, I believe that is still the case.

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