Transocean Inc. (RIG)
If the current high price of crude oil reflects a fundamental change in the world-wide demand for oil, as many suggest (see Sunday Washington Post article), then prospects may be bright for oil services stocks. We have one oil services stock in our portfolio, Helmerich & Payne (HP). The stock is at $52.90 per share, up from the $33.72 we paid for it last June. HP is 6.8% of our portfolio. HP provides contract drilling services to oil and gas producers primarily in the United States, Argentina, Colombia, Ecuador, and Venezuela.
It might be wise to diversify and include deep water drilling company. Transocean Inc. (RIG) pops up in numerous screens and articles. Value Line describes Transocean as the world’s largest offshore drilling contractor, working in all the major offshore regions, including the Gulf of Mexico, the North Sea, the Middle East, and off the coasts of West Africa, the United Kingdom, Norway, Brazil, and Canada. It specializes in technically demanding deep-water/harsh-environment drilling projects.
Here is a stock selection guide for Transocean. Manifest Investing estimates a projected average return of 19.3%. Morningstar rates Transocean 5-stars (undervalued) and calculates fair vale as $176 (current price is $133). We should consider selling part of our position in HP and buying RIG.
General Electric (GE)
We purchased an initial position in General Electric (GE). It took a huge drop on April 11 when it missed its earnings. Historically, GE never missed earnings. With the drop in price, the dividend alone yields 3.87% based on the April 11 closing price. See attached a stock selection guide. This looks like an excellent buying opportunity. Remember, nothing has changed in GE’s underlying business model between April 11 and 12, despite the 14.8% stock price drop on April 12.
Sun Hydraulics (SNHY)
One of the excellent companies that caught in the market downdraft last week is Sun Hydraulics (SNHY). It is a small industrial company in Sarasota, Florida, that designs and manufacturers screw-in hydraulic cartridge valves and manifolds, which control force, speed and motion as integral components in fluid power systems.
SNHY has a global network with 53% of its sales overseas. It is not dependent on any one customer, with its largest customer accounting for 7% of revenues. Insiders hold hold 32% of the shares. If you listen to its last quarter earnings conference (found on the company website), you get a sense of a well managed company with a closely knit team.
Analysts predict 20% EPS growth. We assumed 18% growth in the stock selection guide and used conservative PEs. Manifest Investing rates the quality 79.9 and projected average return 19.9%. The PE to growth (PEG) ratio is approximately 1. With $149 million in revenue for the TTM, this company has room to grow. Propose we buy this company now.
- Link to the company website
- Link to stock section guide and data sheet
Wells Fargo & Company (WFC)
SSG and PERT | Google Finance | Company Website
We purchased an initial position in Wells Fargo & Company on June 13, 2007. This replaces Commerce Bancorp. Here is the stock selection guide we used for the purchase decision.
Microsoft (MSFT)
SSG and PERT | Google Finance | Company Website
We purchased an initial position in Microsoft on June 13, 2007. Here is the stock selection guide we used for the purchase decision.
Walgreen Company (WAG)
SSG and PERT | Google Stocks | Company Website
We purchased an initial position in Walgreens on November 22. Here is the stock selection guide we used for the purchase decision.
Patterson Cos. (PDCO)
SSG and PERT A | Google “Stocks: PDCO” | Company Website
Patterson has had a somewhat mediocre year but the company seems to be on track to improve sales and earnings in fiscal year 2007. (PDCO’s fiscal year begins on April 1.) PDCO has invested in sales and marketing. With its year-end earnings report, PDCO gave earnings per share guidance for 2007 of $1.61-1.64 (about 13% growth).
Growth. Value Line projects revenue growth of about 12% while Morningstar projects 13%. The revised stock selection guide uses 12%. Future growth will come from a combination of internal growth and small acquisitions. Internally, PDCO sets a goal for growth of 4% above the market. Its dental business is currently growing faster than its other lines of business.
Quality. PDCO remains a high quality stock (although Morningstar gives it a narrow moat). Manifest Investing rates quality at 71.3 (out of 100). Value Line rates PDCO’s financial strength an “A” and it earnings predictability 100.
Valuation. Projected average return is 13.5%. PDCO has always sold at relative high PE. Its current PE is about 24. The stock selection guide uses an average future PE of 24.
We purchased PDCO in March 2003 and have enjoyed an annualized return of 12.5%. It represents 2.25% of the portfolio. This would be a good time to add to our position.
Intel Corp. (INTC)
SSG and PERT A | Google “stocks: INTC” | Company Website
Here is a revised stock selection guide for Intel Corp. Assuming 7.0% revenue growth and 8.8% earnings growth, the projected average return is 17.0%. Intel quality is high with a RQR rating of 71.6. Value Line rates its financial strength A++ but earnings predicatbility is only 50. As the two charts below show, Intel has contined to grow its earnings over the past four years while the market price has remained relatively constant for the last 18 months.
Lower than expected Q4 and year end earnings, and concerns about INTC losing market share to AMD have caused the share price to drop 17.4% YTD. Concern over AMD may be an overreaction (see story). Intel will be supplying CPU andrealtred chipsfor Apple’s new computers.
Intel remains a strong HOLD.
Amgen Inc. (AMGN)
SSG and PERT A (12-26-2005) | Google “Stocks: AMGN” | Company Website
Amgen remains a HOLD. Morningstar provides the following summary of Amgen:
Amgen stands out in an industry dominated by companies trying to creep out of the red. With 37% operating margins last year (excluding acquisition-related charges) and historical margins periodically surpassing 40%, Amgen has proved its ability to translate sales into profits. Even though it invested $2 billion in research and development last year, Amgen still generates plenty of cash, with free cash flow solidly above 20% of sales. With these numbers, Amgen is rewarding investors by both funding future growth and repurchasing shares.
Growth. The Value Line 3-5 year growth projection for revenue growth is 18.5% and EPS is 10%. M* only forecasts 15% revenue growth. The attached stock selection guide uses revenue growth of 17%. Using the preferred procedure, this results in EPS growth of 15.5% and a projected 5-year EPS of $5.88.
Quality. AMGN is high quality company with Value Line rating Financial Strength A++ and Earning Predictability 95. Section 2 of the SSG shows average return on equity (ROE) of 16.8% and average pretax margin of 41.6%. The RQR quality rating is 78.2.
Valuation. Applying the above and a conservative future average PE of 23, the projected average return is 10.8% making Amgen a HOLD. M* rates AMNG four stars meaning the stock is under valued.