Equipment Makers: A Stable Investment in Oil?

| About: Cameron International (CAM)
This article is now exclusive for PRO subscribers.

When I start out looking for new stocks to add to my Wall Street Survivor portfolio my process begins on a purely technical price momentum basis. I look for the stocks that are presently hitting the most new highs and then begin a filtering process till I'm down to just a few. I then look for further reasons to narrow my list.

This week when I sorted on Barchart for the stocks hitting the most highs, Cameron International Corp. (NYSE:CAM) came out on the top of my list. Cameron is a manufacturer of the field equipment that oil and gas exploration companies use to explore for new oil and gas fields. While oil and gas prices bounce around all over the place the demand for the equipment to find new fields is far more stable. Whether oil prices are high or low we just need to continue to explore and buy more exploration equipment.

Something else I like about this company is something that scares me about playing around with oil prices. I hear the commentators on TV talk about short interest on oil and gas contacts and I've seen the effect that press releases can have on a stock when all the folks who sold it short try to cover their short positions to stop the bleeding they are feeling in a rising stock market. Since August the short interest ratio in this stock has dropped from 3.6 to 1.5. Simply put fewer people each month are shorting this stock, that's a pretty good vote of confidence from the short sellers. Short sellers tend to be more sophisticated and savvy then the rest of us so it's nice to find a stock that fewer of them are shorting.

CAM has made 17 price advances in the last 20 trading sessions and is 5 for 5 recently. There has been a nice price appreciation of 26.32% over the last 65 days. 12 Barchart's 13 technical indicators are signaling buy for a 96% overall technical buy rating.

24 Wall Street brokerage firms follow this stock and 13 have buy recommendations out with no strong sell calls. The analysts are expecting a 10.0% increase in revenue next year with an annual EPS growth rate of 12% per year for the next 5 years.

Other technical sites like Wall Street Survivor readers give the stock a 5/5 Survivor Sentiment rating and on Motley Fool their readers think the stock will out perform the market by a vote of 965 to 18 with the All Star members giving it a vote of 212 to 3. Even the Wall Street journalists Fool follows like the stock 15 to 0.

I've got some solid reasons to like this stock:

  • The stock is hitting new highs better than 50% for the recent trading sessions
  • Fewer of the savvy short sellers are shorting this stock each month
  • Brokerages firms have buy recommendations out there without any major trash talking
  • Other major Internet sites seem to have confidence that this is a good investment.

Recommendation: I'm adding Cameron International (CAM) to my Wall Street Survivor portfolio around 44.50 with a stop loss at no lower than 40. I'll be moving that stop loss weekly.

Disclosure: no position at the time of publication