I’ve been losing money on Halliburton for the last month but probably not as much as J.P. Morgan clients. If you would like to view this report in its entirety , you should call your J.P. Morgan broker. I’d post it but Merrill Lynch makes me take down everything I post of theirs even though its generally completely wrong. J.P is generally less vigilant and better, too.
1Q12 Preview – Must Be Close to Capitulation
With the mood on the Street about as bad as it can get, earnings season may be just the cure to get all the negative sentiment behind us and get a rally going in oilfield services. This has been a very difficult group to trade the past 6 months, with investor frustration reaching boiling point as seemingly just about everything is going against the sector: macro, market, and company specific issues are all concerns. But with expectations so low right now, it won’t take much to spark a rally, but likely one that will be more stock specific. Not only is there little uniformity across the global service markets, but each company is positioned differently (as Baker Hughes is reminding us). It isn’t all doom and gloom, in fact we see a number of signs that could point towards a 2H rally. With more than 40% upside to fair valuation levels, we think large cap services has to be favored, followed by offshore drillers. Trading at practically unthinkable valuation levels, Halliburton has by far the most upside on our numbers, but Schlumberger is the safer pick heading into earnings season in our view. On the other hand, we think Cameron and Rowan will come up short as we’re below consensus on earnings.
We will need GDP and corporate earnings to keep growing at a healthy pace. And if that is in the cards, then we have a first class ticket up to 1500 this year with a shot at the historical highs of 1565.