Tuesday, April 21, 2009
(Cont'd from above)...

Jim (cont'd):   

Let me lay out the cases each analysts made… their names are being withheld to protect the guilty… because I am a statesman in the mode of Bishop TuTu, or the Dali Lama, or what the heck, Henry Clay… that is for the great-great-great-great grandparents demo… and then I will tell you what I think is going on here… the analysts at Goldman who upgraded HAL, he is new to the job, just started today… even though Halliburton has soared from $15 to $19.96 in less than a month… it is still a lagger… underperforming the Oil Service Index, the OIL SERVICE SECTOR INDEX (^OSX), by 10.7% year to date… today the analyst upgraded the whole oil service sector… and moved Halliburton to the top of the list… the guy at Goldman thinks we are going to see an early cycle recovery in North American drilling, which Halliburton has a lot of exposure to… Goldman expects the North American recount to increase by 57% from the third quarter thru the fourth quarter… man, is that optimistic… because they expect more drilling will be needed to maintain natural gas supply… which would be good for Halliburton, as its competitors do no do as well with the more technical type of horizontal drilling that a lot these wells will need… remember, we always talk about some of these shales that is a lot of horizontal drilling, shales all over the country, like the Pennsylvania one… the Goldman analyst also likes Halliburton because it has got the second largest market share in off shore drilling… which is still growing… and Halliburton does have a cleaner balance sheet than most of its peers… you know how much that means to us… that is the conviction by case from Goldman’s new analyst.

How about JP Morgan, downgraded HAL… apparently the guy there believes that prince HAL is still spending too much time with Falstaff, and is not ready to be king… let alone ready to kiss Kate or any other babe… he points out that the North American market still isn’t any good… yes, thank you JP Morgan… Halliburton also mentioned on its conference call that it could see another 3 to 5 percentage points of erosion in its margins… meaning that a smaller percentage of every dollar of sales will go to be its profits… the other thing that the analyst at JP Morgan points out is that a bottom in the rig count, remember the other guy said that it is already going to start going up, doesn’t necessarily mean that the bottom in Halliburton earnings, in fact, the full brunt of the action probably would not be felt by them until 2011... see this guy is calling rather than a call in the year, a call two years from now… the other problem that JP Morgan analyst has… Halliburton may struggle to replace some contracts that will finish this year… creating a gap between projects that are expiring and the new ones that could come on line next year… I think that they will all be done at lower contract prices.

So who is really right… well, if I were you… I would sell the stock… which has moved upped dramatically… because Goldman Sachs has a dynamite sales force, and remember I used to be a part of it… and in the move, the move came because Goldman was pushing it… hey, the group all went higher because of Goldman Sachs… and that gives you a great opportunity to sale… we think that ultimately the analyst at JP Morgan wins this pay per view smack down… no question… although these guys are being gentlemen… the real analysts of Wall Street is not as exciting a show as the real housewives of New Jersey…. even though it is slightly trashier.

Why do I think that the Goldman analyst is wrong, other than the fact that the merits of his arguments don’s seem so hot and he has got the stock hopping… alright, like I said, brand new guy… this is what happens… new guy has to upgrade when he comes in… well he has to make a splash… the analyst wants to be early… he wants to get ahead of the turn, but you cannot bet on a turn when the fundamentals are still deteriorating… and the major oil companies are still cutting back on drilling… and while the natural gas price is struggling to deal with pathetic $3.50 pricing… and anyone who doubts this, go read the story about Chesapeake Energy Corp. (CHK), on Market Watch today… I mean they are talking about things being bad for a while.

Now, in a way this actually does make some sense if you are a giant mutual fund, you are probably going to listen to what Goldman says… because you have to start buying Halliburton early.. you need to do it over time, otherwise you will move the stock too much… so maybe you do need to get this head start… but individuals do not… that timing is not for you… it is for the big shot money managers who need to buy tens of millions of shares for it to make a difference… that is who Goldman Sachs really caters too.

Second, I think the timing is terrible.. the time to upgrade the stock was at the beginning of April, at $15... not at $19.96.. that is not the analysts fault though… it is an institutional problem, if the analyst had taken over coverage a few weeks ago he might have had a chance… not like this though… he had to upgrade something and that is how the analysts profession works… the guy at Goldman’s isn’t going to go look at all these drillers, look at all the reports, and then go say forget them don’t buy… nobody is paying him to make that call… analysts are always either too bearish or too bullish of a given sector… that is from Jim Cramer's Mad Money: Watch TV and Get Rich, second gospel according to Cramer… and this Halliburton upgrade is too bullish by far.

Analysts cover sectors, and within your coverage area you have got to have some buys… you have got to have some holds… some sells… otherwise you do not look rigorous… and for most of these guys looking rigorous, not necessarily being rigorous, is what counts… it is how they keep their jobs… I do not blame them… I just think that you should be careful who you listen to… and more importantly the timing of when they say it.

Now, Goldman has a hugely expensive research department… and sometimes I wonder if they have enough rigor that we have on this show… and while those of you who watch regularly, know we prize rigor over anything else here… even self aggrandizement.. I am the guy who is always compared to say Bozo the Clown, and Soupy Sales… most of these guys are Goldman are just kids… and I have been around forever, and maybe then a couple of more days… I totally agree with JP Morgan’s downgrade… here is an analyst who has watched the stocks get ahead of themselves… particularly Halliburton… even as the company has an inferior product profile vs. other drillers… and is too levered to natural gas… which I have told you is just awful… silent but deadly… you can’t bet on a turn in the drillers until you see a turn in the major oils… the companies that do the drilling… right now those companies are trying to put the screws to the Halliburton’s… forcing them to earn less per dollar of a contract… that is going to hurt Halliburton’s margins, what they make after all of their costs… if they can’t chisel HAL and the others… I think that they will just drill less… because they will not have the cash flow… the analysts at Goldman upgrading HAL and the other drillers before we have even seen the turn in the drilling… it is crazy… I really don’t think it is worth trying to get ahead of that… with so many budget cuts coming down from the oil companies.

So here is the bottom line…

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