This is a checklist I use to quickly come to a conclusion on a stock. I score a stock, each line getting a 1, 0, or -1. A stock that scored 1 on each line would be a perfect 10. Buy it!
Some of these items are quite subjective. For example how would I score Cash Flow? If a company’s cash flow is much lower than it’s reported earnings, that raises a flag and I would score it a -1. If there are more insiders buying than selling, I would score it a 1. If there are no apparent catalysts in the near future I would score it a 0 but on the other hand if there is a pending secondary that will put more stock out on the market, I would score it -1.
- CHART- know how to read charts. I firmly believe I can improve the price of buying or selling from an understanding of chart action. Although SPN is below 50 & 200 day moving averages, the RSI is diverging. +1
- ANALYSTS- read analyst reports but come to your own conclusions. 6 strong buys, 7 buys, 1 hold. +1
- INSIDERS- if the people that know the company the best are not buying it, why should you? This is more complicated than usual. The CEO Dunlap bouth 10,000 at $30.43 and the Dir Kennear buought 10,000 at $29.69. That’s clouded by V.P. Moore’s enormous exercise and sale of 443,196 shares on 2-29-12. A review of the Form 4. To understand that, note that on February 7th, Superior complete the acquisition of Complete Production Services. Mr. Moore. From March 2007 until the merger between Complete Production Services, Inc. and Superior, Mr. Moore was President and Chief Operating Officer of Complete, and was with Complete and its predecessor companies since April 2004. 0
- MANAGEMENT DISCUSSION 10Q AND 10K- this is the only truthful thing you will read about a company. It’s composed by management, the auditors, and the firm’s lawyers. If all three of them can agree on the verbiage, it’s passed a big hurdle. Read it carefully. Pay particular attention to the Risks, Litigation, and Related Transaction sections. These are the things you will wish you had taken the time to read if something goes bad with your investment. Superior recently acquired Complete Productions (CPX) which put them in all of the unconventional North American hydrocarbon plays. Advances in horizontal drilling and completion technologies and techniques have made the development of many unconventional resources such as oil and natural gas shale formations economically attractive. The North American horizontal rig count has risen from 335 at the beginning of 2007 to 947 at the end of December 2010, according to Baker Hughes. The bad news is that there will be short term oversupply and dislocation resulting in margin pressures. The risk is best summed up from CPX’s 10k 0
- RELATIVE PERFORMANCE- If the stock has a superior relative performance to the market in the short term + 1 – SPN has been underperforming -1
- SECTOR OUTLOOK- buying a good stock in a bad sector can be a humbling experience -1
- CASH FLOW- cash flow is more accurate than earnings. Earnings can be more easily manipulated. +1
- PEG RATIO- it’s good to find a company growing faster than it’s multiple. +1
- VALUATION- contrary to popular opinion, it does matter what you pay for a company. Check its discounted cash flow value. Buy it for less than what it’s worth, a 1, less a -1, about the same 0. -1
- 10.CATALYST- what’s going to change the status quo?Superior Energy Services (SPN: 24.75, -0.44, -1.75%) has agreed to acquire Complete Production Services (CPX: 36.10, -0.10, -0.28%) for about $2.7 billion in a cash-and-stock merger that will help expand its presence in the oilfield-services industry
The combined company will have enhanced positions in large sectors for key products and services, such as hydraulic fracturing and well servicing, that are widely used during drilling, completion and production processes, Dunlap said.Superior hopes the addition of Complete, which provides specialized completion and production services and products to develop hydrocarbon reserves for oil and gas companies in North America and southeast Asia, will help expedite its global expansion. The timing of this transaction could be dreadful though as N.A. frac drilling is becoming crowed and margins coming down according to SLB recent conference call. None the less, the future in the long term is in these unconventional oil and gas plays and the potential for global expansion of shale plays seems bright if untested. -1
Trading the markets is a humbling experience. I hope this handy checklist makes it less so.
SPN reported tonight a good quarter. I think the score just went up.