"Consistent with historical seasonal patterns, oil services stocks had a dismal fourth quarter; however, the stocks are generally better performers in the first half of the year, particularly when fundamentals are positive. In years the rigcount has risen since 1986, oil services and equipment stocks have outperformed in the first half every year (seven for seven) and in the first quarter six of seven years (by an average of 11% in this quarter). We believe the stocks will again be viewed as highly attractive given excellent earnings expansion in the group and prospects for multiyear growth.
Oil service stocks are turning the cyclical corner, with most posting positive sequential and year-over-year earnings comparisons. The group should exhibit healthy earnings momentum over coming quarters as producers accelerate capital spending programs. Rising international activity, as indicated by the recent rigcount gains, should further drive earnings growth through 2001 and beyond.
We believe the group should meaningfully outperform the broader market in 2001. Oil price risk has moderated, with crude prices below $29. We continue to advocate broad group exposure to maximize leverage to the group."