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Waitandsee22
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Long: (Roth) AAPL, AGCO, BA, CMI, COP, DE, GWW, HAL, HP, KMI, KO, MCD, NLY, OII, QCOM, VLO; 401(k) VFIAX, VGSLX
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  • Diving In To Oceaneering International Inc

    Diving into Oceaneering International Inc

    In case anyone has been living in a hole for the past six months, oil prices have declined. A lot. Anyone who has exposure (or God forbid overexposure) to the energy sector has taken a punch to the gut, unless of course they were able to dust off that crystal ball and avoid the falling knife. I was, like most DGIs, a proud member of the former, but as an investor newly acquainted with DGI, I am more easily able to look at said decline as an opportunity to buy distressed assets on the cheap rather than freaking out and running for the hills.

    Towards the end of the year, the hunt for bargains led me to initiate positions in both HAL and HP. In the short term this hasn't worked out, but I went into it knowing that I may need to average down prior to seeing a long-term gain, which I am fine with. I would say that my portfolio does have a bit of overexposure to energy with 5 out of the 12 holdings in my Roth being directly related to energy; however, I view this as temporary as once this sector comes back in favor and valuations turn back to normal I will be allocating funds to other sectors that have fallen out of favor.

    My search for bargains in the large-cap oilfield services such as HAL, NOV, and SLB (I would like to initiate a position with all of them in the near future but want to space out my buys) eventually led me to the 5.8B market cap Oceaneering International Inc.

    Company Description (per Scottrade):

    "Oceaneering International, Inc. is a global oilfield provider of engineered services and products, primarily to the offshore oil and gas industry, with a focus on deepwater applications. The Company's segments include services and products provided to the oil and gas industry (Oil and Gas) and all other services and products (Advanced Technologies).It has four business segments within the Oil and Gas business, which are Remotely Operated Vehicles (ROVs), Subsea Products, Subsea Projects and Asset Integrity. In June 2014, Oceaneering International Inc acquired AIRSIS Inc., a provider of remote asset management software services. In June 2014, Oceaneering International Inc acquired Spectrum Sales & Services LLC, nondestructive examination (NDE) company that has developed subsea pipeline inspection technology based on use of Electro Magnetic Acoustic Transducer (EMAT) technology."

    Dividend

    Current annual dividend rate of 1.08 is good for a 1.95% yield, which is just higher than the S&P yield and is decent in case there is no catalyst for price appreciation in the near-term. OII only started paying dividends in June of 2011; however, they have grown the dividend at a healthy 21.64% clip over the past 3 years. This is exactly what I'm looking for as a young DGI investor as high quality + moderate current yield + high growth should end in nice capital appreciation and a steadily growing income stream for years to come.

    Valuation

    Per FAST graphs OII's normal P/E ratio is 20.2 and currently sits at 14.3. If this were to expand to normal levels that would imply 38.47% upside or a share price of $78.60. If we average the normal P/E ratio with the current P/E we get a value of 17.25. If the ratio expands to this level that implies 18.15% upside or a share price of $67.49.

    Fundamentals

    Per Thomson Reuters, revenue growth stands at 14.6% YoY, gross margin 24.9%, ROE 21%, net margin 12.8%. Additionally, OII holds no long-term debt obligations. It is a fool's game to speculate which companies may become acquired; however I would think that with this company's strong balance sheet and operating performance it would be on the short list of candidates if M&A activity were to be considered.

    Technicals

    Per stockcharts.com RSI is currently 27.94, which indicates that this equity has just reached oversold territory. MACD shows the black line crossing down over the red line indicating a bearish trend.

    Risk

    An investment in any oil-related company in the present environment presents certain the short-term risk of catching a falling knife. Due to the challenging oil price environment and bearish technicals I believe I may have the chance to average down on this position prior to seeing this bet pay off in the long-term. Additionally, with a beta of 1.6 and a smaller market cap than most of my holdings, this equity will be more prone to price swings in either direction.

    Conclusion

    I bought 15 shares of OII @ 55.34, for a total of $834.60. I review all my positions on a quarterly basis (unless special situations arise) and so I will take another look at this position in April. I believe that there will be some short-term volatility here, but I am not so concerned with daily price movements as I am with the solid fundamentals staying intact. I believe that 5, 10, 20 years down the road I will be happy that I entered into a partnership with Oceaneering International Inc.

    Jan 06 2:44 PM | Link | Comment!
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