A Contrarian Look at GlobalSanteFe (GSF)

| About: Goldman Sachs (GSF)

Nick Perry (Schaeffer's Investment Research) submits: A recent Business Week article paints a bullish view of GlobalSantaFe (ticker: GSF). Here's a contrarian view on it:

Article Details:
Publication: Business Week Online
Publication title: GlobalSantaFe's Platform for Growth
Publication date: 12/13/2005

Brief Summary:

"Despite damage inflicted by Hurricanes Katrina and Rita, the offshore oil and gas drilling outfit is poised to benefit from rising rig demand." This article offers optimism on GlobalSantaFe (GSF) arguing the stock is attractively valued amid an encouraging fundamental backdrop. Standard and Poor's sees "looming shortages of jack-up rigs by mid-2006 in a number of key drilling regions around the globe" and believes that GlobalSantaFe's positioning means that it "should benefit from such a shortage, should it occur, due to upward pressure on day rates."

Contrarian Takeaway:

The strongest contrarian signs emerge when sentiment runs counter-trend to the price action. In other words, a contrarian is most interested in skepticism on a strong stock and most concerned about optimism on a weak stock. In the case of GlobalSantaFe, we clearly find optimism, but on a strongly performing stock. The shares have gained 50 percent this year and are trading at their annual high. In a situation like this, the optimism appears to be, at least partly, deserved and would not necessarily be sufficient to mark a top. However, given that data from Zacks shows that 15 of 19 analysts (79 percent) already rank GSF with a "buy" rating, contrarians may want to keep a wary eye on the stock performance. Should the momentum slow, the Street may look to shift its posture, which could add pressure to an overextended stock.

GSF chart below; click to enlarge.

Nick Perry (nperry@sir-inc.com)
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Tagged: , Oil & Gas Drilling & Exploration
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