Oil and Natural Gas are typically welded at the investment hip. They often occur simultaneously in developed fields and are lumped together in much the same way as physical gold and silver - ratios of one to the other are viewed historically and investibility in either looks attractive when those ratios are either high or low.

I'm going to offer an alternative view. Consider oil and natural gas as different bridges, of limited life-spans, to the future. Oil's bridge was built generations ago. It lifted early industrial, fuel powered societies thru an assisted muscle powered age to a decidedly unmuscled technological age. While there are still decades of diminishing supply left it is the fuel of the past. Literally, that bridge has been crossed. Natural gas will, of necessity, carry us over a shorter time span to the next energy bridges, most likely some version of much cleaner coal, nuclear power, and wind/solar power. Even those future generation sources will not be final answers, but in investing, final answers are not necessary. Only profitable ones.

If history is any indication, National-Oilwell Varco's (NOV) recent acquisition could end up benefiting Grant Prideco's (GRP) shareholders more than its customers. Acquisitions of companies with higher customer satisfaction ratings (i.e., Grant Prideco) by companies with lower customer satisfaction ratings (i.e., NOV) tend to pull the ratings of purchased companies down rather than lift the ratings of the acquirer. In addition, bigger is not always better in terms of execution and in satisfying customers.

National Oilwell Varco (NOV) is buying Grand Prideco (GRP) in a cash/stock deal that should be accredative to earnings. I've never held Grant Prideco in the fund but have looked at in the past and found it to be a solid company; so I like this deal which puts a 22% premium on Friday's closing price for GRP. National Oilwell Varco, as discussed last week, broke out technically and this news has put pressure on the stock, with it down 7% in early trading, conveniently taking it right down to the 50 day moving average (mid/upper $71s). Thank you market; I will be adding here. While this deal will add some pressure to the stock near term, in the long run it looks like a good acquisition and makes National Oilwell Varco even more of a powerhouse than it already was.

Oil drilling and services companies National Oilwell Varco (NOV) and Grant Prideco (GRP) jointly announced early Monday a merger through which National Oilwell Varco will acquire all of Grant Prideco for $23.20 in cash and 0.4498 of its own shares per GRP share. The deal values GRP at $58 per share, a 22% premium to Friday’s closing price of $47.46. The deal was unanimously approved by both companies’ boards. According to the press release, the transaction is "expected to be accretive to earnings and cash flow per share for National Oilwell Varco in 2008," assuming full-year cost savings of $40 million.

Stocks discussed in the lightning round session of Jim Cramer’s Mad Money TV program, Friday December 14. Click on a stock ticker for more analysis:
Bullish calls:

Blue Nile (NILE):
Masimo (MASI): 'This was a super breakout. ... I remain committed to this company. ... This is one that has potential to be a much bigger medical device stock than most in a slowing environment.'
Agrium (AGU): 'They just did this terrific acquisition. ... The stock is hovering right where the offering was done. ... The brokers have been standing back; they're not allowed to push it until next week. ... When they do ... Moo!" Mosaic (MOS) Halliburton (HAL) Schlumberger (SLB) Grant Prideco (GRP)
VF Corp (VFC): 'We tend not to like new CEOs in the first year, but we like [President and COO Eric] Wiseman. ... Pull the trigger.'
Fuel-Tech (FTEK): 'The insiders are buying it like mad. ... I think Fuel-Tech is a great spec, and I want to be a buyer, but not until year-end.'
GameStop (GME): 'A stock that is just a point or two from its 52 week high? GameStop's a winner. ... I wanna buy GameStop.'
Synchronoss (SNCR): 'It jumped and then it got hammered. I like Synchronoss. ... I think tech is right here. ... Everything got crushed except for GameStop.'
L-1 Identity Solutions (ID): 'It's a little speculative here. ... I would stick with it.'

Hedging Against the Fed: Grant Prideco (GRP), National Oilwell Varco (NOV)

Cramer thinks oil companies will be fine regardless of whether or not the Fed cuts, and while oils have been rising, GRP is the “ultimate laggard that is ready to roll.” In spite of its “phenomenal” drill pipe business, GRP has not yet seen gains and its CEO has a tendency to underpromise and overdeliver, said Cramer. At $55, GRP is a “steal” compared to NOV which deals more with machinery while GRP, “the Gilette of oil service” deals with consumables.

TRANSCRIPT SPONSOR

Grant Prideco Inc. (GRP)
Q2 2007 Earnings Call
July 26, 2007, 8:30 AM ET

Microsoft (MSFT), aQuantive (AQNT), Yahoo (YHOO): Cramer calls MSFT's bid to buy AQNT at $6 billion a "game changer," and he doesn't see any reason why it wouldn't also buy YHOO for $50 billion. The bid may usher in the beginning of a "land grab against Google." While Cramer wouldn't buy a down company solely because of a potential takeover, he notes YHOO has great traffic and thinks the stock could reach $34 immediately if CEO Terry Semel takes a "permanent vacation."

Energy's Respite Won't Last Too Much Longer by Dimitra Defotis

Bullish calls:

Grant Prideco, Inc. offers various oilfield equipment and services to the oil and gas industry worldwide. It operates through three segments: Drilling Products and Services, Drill Bits, and Tubular Technology and Services. The Drilling Products and Services segment manufactures and sells drill pipes, drill collars, heavyweight drill pipe, and drill stem accessories (Full Y! Finance company profile).

Catalysts that make GRP a buy:

Oil Aboard!

Eddy Elfenbein submits: Here’s a closer look at the 18 stocks in the Oil Service Holders ETF (OIH). This has become one of the most popular exchange-traded funds on Wall Street. Since May 13, the ETF is up 75%.

I’ve thought that this sector has been overpriced for some time. Yet, despite what I think, the stocks keep going up, up, up.

Sub-Sectors