Dear Subscriber to TheStreet.com Stocks Under $10,
The model portfolio has lacked direct exposure to the energy patch for some time, but today we are adding Vantage Drilling (VTG:Amex).
After you receive this Alert, we will purchase 1,750 shares of Vantage here around $1.64, equal to 2.4% of the model portfolio. This leaves us the room to buy another 750 shares .
The company is an offshore driller with three rigs currently in operation and another one expected to come online in the coming weeks. Even though energy commodity prices have rebounded in 2009, it's been a difficult year for the drillers, as oversupply has hurt contract pricing.
That said, during the third quarter Vantage's two rigs respectively operated at 98% and 99% productivity, and we believe the entire industry is reaching an inflection point. The company's projects are spread out across the globe, with sites in the Gulf of Mexico, Africa and Southeast Asia, among others. A third unit, the Aquamarine Driller, began drilling in November.
There are risks to the story, including the fact that Vantage is a relatively new firm. The company's first rig started generating revenue in the first quarter of 2009.
Additionally, Vantage is admittedly a broken initial public offering (IPO) -- having come public in May 2007 at $8 a share -- but we believe there is real value in the rubble.
With a relatively new firm like this, gauging the strength of the management team is important. We believe that Vantage measures well on this test, as its three top executives have 76 years of combined experience, including time at major drillers like Transocean (RIG:NYSE) and Pride International (PDE:NYSE).
With a fleet consisting of only newly built ships, the company also believes that it has a strategic advantage, as more than 70% of the jackup rigs currently in the market are at least 25 years old.
This is a capital-intensive business, which means that the company carries a lot of debt on its balance sheet. At the end of the third quarter, Vantage had $265 million in total debt, compared with just $40.7 million in cash.
Just last week the company announced a proposed debt offering of $135 million, which it primarily plans to use for financing the remaining construction on its new rig, the Topaz Driller. Upon delivery, the rig is expected to begin operating in January. The key is that market demand continues to improve, and we believe that all of the company's rigs will see little downtime in 2010.
David Peltier & the TSC Research Team
Hold Citi for a Double
6:45 AM EST
The dilution here was expected, and this one is marching higher. More
Jim Cramer Blog
Hold Citi for a Double
By Jim Cramer
12/21/2009 6:45 AM EST
December 10, 2009
07:57 EDT WFT theflyonthewall.com: Weatherford risk/reward very attractive, says Wells Fargo
Wells Fargo notes that Weatherford's stock is trading well below its average historical multiple and the firm maintains an Outperform rating.
"The oil trade's really taking it on the chin. A fantastic article about the coming glut of offshore drillers on Bloomberg has hurt Transocean (RIG - commentary - Trade Now) and brought the complex down. I disagree with the broad range of selling and have been using it to pick up some of the much cheaper Weatherford (WFT - commentary - Trade Now)."
" think the concerns about slowing growth in Mexico and an equity secondary offering are factored into the shares at 15 times earnings vs. the 22 times average for the group. Even if the company were to do an offering at $16 -- management denies it will do one at all -- that would still make it a cheap stock at 18 times, well below the group."
I'll be there to buy...but it makes me nervous
He is does not have a full position. I just report the news ......... I have more shares than that.
I am also going to add to the WFT position because the stock has lagged the oilfield services sector -- a situation that I believe is overdone, especially given its international growth prospects at triple the industry average.
After my trade I will have 3,000 shares of WFT.......
He said they will be saying you must own WCRX
An alert today from Stocks Under $10 on The Street.com
Stocks Under $10
Action DSPG VTG AXAS BFRM 11/19/09 - 11:14 AM EST
David Peltier Print This Article Email David
Names on Our Radar
The major stock market averages are trading considerably lower across the board this morning. Once again, the small- cap benchmark Russell 2000 index continues to show more volatility than the Dow Jones Industrial Average and S&P 500, as it is falling by a greater amount in early trading.
We're not making any trades for the model portfolio in this Alert. A few of our One-rated names are approaching levels at which we'd consider putting some funds to work, but it will likely take another day of selling for us to take action.
In the meantime, we wanted to mention some new names to readers that we've been looking at since the end of earnings season. We've done a lot of research in the past several days and these are the stocks that have stood out so far.
First is DSP Group (DSPG:Nasdaq), which is the leading manufacturer of chips for cordless telephones. Although industry demand has been soft of late, the company has continued to generate positive operating cash flow. As we try to get a better sense of DSP's growth prospects in the new decade, it's worth pointing out that the stock is trading at just two-thirds of its tangible book value. The main component of this is cash and investments, which works out to $4.80 a share on the company's debt-free balance sheet. The stock was recently changing hands at $6.05.
We currently have no exposure to the energy patch in the model portfolio, but two names have caught our eye of late. The first is Vantage Drilling (VTG:Amex), which is well positioned to benefit from a rebound in demand for its offshore rigs. The company is already running at full utilization and plans to bring more units online in the coming months. The stock was recently trading at $1.83.
Another energy name on the exploration side is Abraxas Petroleum (AXAS:Nasdaq). The company has a lot of debt on its balance sheet, but is benefiting from rising spot- commodity prices. To reflect this, management is looking to shift some of its production efforts from natural gas toward oil in 2010. Shares recently trading at $1.98. In the health care sector, BioForm Medical (BFRM:Nasdaq) is gaining market share with its dermal filler Radiesse. The aesthetic products market can be very sensitive to the overall economy, and as we become more confident with that issue, it's worth noting that the company has a solid clinical pipeline.
Additionally, Bioform's stock has run up nearly 300% year to date, and was recently changing hands around $3.50. The company also has a pristine balance sheet and we plan to conduct more research on this name.
We will continue to update readers on the new names that are popping up on our radar screen in the coming weeks and send Alerts when we're ready to add any of them to the model portfolio.
David Peltier & the TSC Research Team
David welcomes your questions on Stocks Under $10. Please email David with your questions at firstname.lastname@example.org. However, please remember that Stocks Under $10 is not intended to provide personalized investment advice. Do not email David seeking personalized investment advice, which he cannot provide.
Sentiment : Strong Buy
Deepsub...i have been looking for you. You are always in the best stocks. I had kept your thread from another board. I lost it. Good to see you.
at $16.97 after you receive this Alert. Energy is weak today on the dollar strength, and I'll take advantage to buy. The oilfield service industry should improve in 2010 as the commodity price recovery allows for better capex levels, which will provide a lift for Weatherford and the group. Pricing has begun to stabilize in certain markets and should recover as well.
Weatherford has an exciting international growth profile in Iraq, Algeria, Russia and Brazil that should lead to well- above-average growth vs. its peers (30% versus the 10% market). It trades at a discount to the group and has underperformed the Oil Services HOLDRs (OIH:NYSE) since October (WFT is down 14% vs. OIH's flat performance) as well as its direct peers, Schlumberger (SLB:NYSE) and Halliburton (HAL:NYSE). I think this is extreme, and I'll add on the weakness today.