Flash Alert: Cover Some Halliburton
In a Nov. 12, 2007, flash alert, Shorting Halliburton, I recommended taking a short position in Halliburton (NYSE: HAL) or purchasing the April 2008 $40 put options on the stock. My thesis is simple: Halliburton is heavily exposed to the North American oil services market, the only truly weak market in the world right now.
The stock is down big today after competitor Schlumberger missed its earnings estimates by 2 cents. The main reason for that miss was weakness in North America.
The key point to keep in mind is that Halliburton is far more exposed to weakness in North America than Schlumberger. Therefore, Schlumberger’s miss is bad news for Halliburton.
That said, you should always be more vigilant and proactive with short positions than with longs; stocks tend to sell off more rapidly than they rise in value. Halliburton’s significant selloff in recent weeks already prices in a lot of bad news about North American services. There’s scope for the stock to actually rally on bad news when it reports Jan. 28.
Therefore, I’m recommending that you take profits on half your Halliburton position at current prices for a gain of around 15 percent. So, for example, if you’re short 100 shares of the stock, buy to cover 50 of those shares.
In addition, I believe there’s far more downside in crude oil prices at this time than there is in oil services or energy-related stocks. For that reason, I’m recommending you double your short position in the US Oil Fund (AMEX: USO) above $71.
The US Oil Fund tracks oil prices and, if oil moves into the $70s as I expect, it should offer a nice hedge for your portfolio.
Finally, I’m eyeing the energy patch for good values right now. Fortunately, we sold some of my favorites, such as Schlumberger and FMC Technologies, out of the portfolio late last year at higher prices.
But the recent selling in these stocks looks overdone because Schlumberger’s report really doesn’t look particularly weak; margins were hit partly by some one-off seasonal factors. And Schlumberger warned of the potential for that sort of issue in its last conference call back in October.
I believe that we may be only a few weeks away from a stellar buying opportunity in some of these stocks. Look for a more complete analysis in next week’s issue of The Energy Strategist.
The stock is down big today after competitor Schlumberger missed its earnings estimates by 2 cents. The main reason for that miss was weakness in North America.
The key point to keep in mind is that Halliburton is far more exposed to weakness in North America than Schlumberger. Therefore, Schlumberger’s miss is bad news for Halliburton.
That said, you should always be more vigilant and proactive with short positions than with longs; stocks tend to sell off more rapidly than they rise in value. Halliburton’s significant selloff in recent weeks already prices in a lot of bad news about North American services. There’s scope for the stock to actually rally on bad news when it reports Jan. 28.
Therefore, I’m recommending that you take profits on half your Halliburton position at current prices for a gain of around 15 percent. So, for example, if you’re short 100 shares of the stock, buy to cover 50 of those shares.
In addition, I believe there’s far more downside in crude oil prices at this time than there is in oil services or energy-related stocks. For that reason, I’m recommending you double your short position in the US Oil Fund (AMEX: USO) above $71.
The US Oil Fund tracks oil prices and, if oil moves into the $70s as I expect, it should offer a nice hedge for your portfolio.
Finally, I’m eyeing the energy patch for good values right now. Fortunately, we sold some of my favorites, such as Schlumberger and FMC Technologies, out of the portfolio late last year at higher prices.
But the recent selling in these stocks looks overdone because Schlumberger’s report really doesn’t look particularly weak; margins were hit partly by some one-off seasonal factors. And Schlumberger warned of the potential for that sort of issue in its last conference call back in October.
I believe that we may be only a few weeks away from a stellar buying opportunity in some of these stocks. Look for a more complete analysis in next week’s issue of The Energy Strategist.
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