JJC:    I'm talking about the "Ketchup Trade"... where you take a sector that's been going higher...  You find a stock that's lagged the group... and, if you believe it can catch up with its peers, you buy it...

I love these plays, because they're a great way to take an area, where you've already made money, and do it all over again with your Ketchup stock...

In this environment, where caution is king, Ketchup Stocks are relatively safe buys, because their Ketchup status means they have relatively lower valuations than the other stocks in a hot group...  That doesn't mean they can't go lower...   It does usually mean that declines will be less frequent and slower because, on a relative basis to their cohort, they're so cheap...

My next Ketchup pick is Baker Hughes Inc. (BHI)... an oil service stock that I have not recommended on this show at all... no.   And you know I've recommended a lot of them, but not this one...  But it's time...

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A stock's sector counts for 50% of its performance...  and oil service is, along with ag and minerals, one of the strongest sectors there are...  and this is the worst house in the best neighborhood...   Now, remember, the worst house in a best neighborhood... BHI... is a lot better than the best house in the worst neighborhood... say banking or brokerage.

There are two big-picture problems that has held this one back...

One is execution... The Street doesn't have much confidence in BHI, because it was less aggressive than its peers in penetrating foreign markets, and so it had to catch up with its peers on that front too.

Now, just so you know...  Remember, long-term Cramer recommendation and fave, Halliburton Company (HAL), at $29-30, got its act together and said that it was going to be able to change and become more international...  That was it...  HAL... Nobody liked it except for us...   Remember, we were at the University of Texas...  That stock was at $28 that day.  That was a year ago.  It's at $43.

BHI could be son of HAL...

Now, here's something that HAL didn't have, that BHI has though...

It's been dealing with a deferred prosecution agreement it made with the Department of Justice... relating to misconduct in Kazakhstan, under the Foreign Corrupt Practices Act.  BHI has said the agreement hurts their ability to compete internationally... because it limits the number of foreign agents they can use to facilitate their transactions.  

The agreement doesn't expire until April of next year but, as we get closer and closer to expiration, I think this issue will exert less and less downward pressure on the stock.  It's basically built into the stock...

Beyond this big stuff, there's the problem of BHI's last quarter... one that thoroughly under whelmed the Street.   The company's international revenue growth lagged that of its peers.   BHI said that it expects its margins for the year to be lower than it had previously forecasted.  That crushed the stock.

But, now, we've got lowered expectations.  We like that too...

Well... what is to like about BHI proper?... With this litany of negatives, why do I deem it Ketchup worthy?...

First off, BHI still has some positives going for it. It's a ROW-er... 58% of its revenues come from the rest of the world. It's now growing all over the globe, especially in Brazil and Russia, where there's some really aggressive drilling.

Despite the tough competition, BHI is still ramping (i.e., growing) its earnings at 21% a clip... Now remember, you don't have a lot of companies growing at greater than 10%. This has got 21%.

I think a big part of this stock's catch up will be fueled by the recovery in U.S. land drilling, which has just been a total bear market since (Hurricane) Katrina...

BHI seems to be expecting little to no increase in the rig count in North America. But things have already changed, since the company gave that guidance when it reported last quarter... Rig counts in the U.S. are up by 83... 76 more land rigs and 7 more offshore rigs in the U.S....

Since BHI probably based its guidance on the assumption of a flattish U.S. rig count, this is UPOD now... this is the under-promise and over-deliver... I think the recovery of land drilling in the U.S. will mean BHI does better than predicted, giving the Street a piece of good news for a change, and a chance to upgrade...

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