Ticker Tape: Drilling for Dollars

12/06/2002 12:00 am EST


Leo Fasciocco

Investment Columnist and Publisher, Ticker Tape Digest

Leo Fasciocco, editor of the online Ticker Tape Digest, seeks companies that have been under accumulation and are poised to break out to a new high or out of a previous trading range. He currently sees favorable technical action in the oil service and drilling sector. Here are two recommendations to benefit from this trend. 

"Rowan Cos. (RDC NYSE) provides contract drilling of oil and gas wells, mainly in the US and Eastern Canada. Its fleet consists of 23 jack-up rigs, one semi-submersible rig, and 17 land drilling rigs. Annual revenues are $730 million. RDC is set to show a sharp improvement in quarterly earnings, rebounding from the weak results of earlier this year. This year, we see RDC posting a loss of 13 cents a share. However, looking ahead to 2003, we see its net climbing to 72 cents a share and then, in 2004, showing a gain of 78% to $1.28 a share. In the past, when the oil service stocks started to report good earnings comparisons the stocks did extremely well. We see good chances of that happening again.

"Insiders were buyers in November. The key buy was 22,222 shares by RDC president Daniel McNease. He used stock options. He was a buyer around 21. We see insider activity as clearly bullish. The stock recently scored a breakout and tape action is extremely bullish. Overall, we see a significant move starting in oil service stocks in general and Rowan is one that should do well. We target a move to 28-30 within the next six months. A protective stop can be placed near 20.

"Ensco International (ESV NYSE) is a leading offshore drilling contractor. ESV owns 56 offshore rigs. It conducts most of its domestic drilling business in the Gulf of Mexico, but also operates in Latin America, Europe, and the Asia/Pacific region. Annual revenues are $817 million. Putting aside the international situation, ESV’s stock is technically acting strong and the tape is indicating that the stock wants to go higher. Technically, ESV rallied from a low around 14 back in September of 2001 to a peak of 35 by May of this year. The stock then went into a normal consolidation pulling back to the mid-20 zone. Now, after showing tremendous accumulation, the stock is poised to emerge from that consolidation. It needs to just get over 30.50 to clear its base.

"We see a rebound in earnings in 2003 and we believe that is what will propel the stock forward in coming months. We see net for 2002 coming in at 73 cents a share, down from $1.41 in 2001. Going out to 2003, we see the net climbing 89% to $1.37 a share and for 2004, rising 30% to $1.78 a share. ESV is acting very strong, along with the rest of the oil sector. With strong earnings comparisons coming, the stock should surprise on the upside. A complete position should be in place on a move over 30.50. We are targeting ESV for a run to 39, which would take it to a new 52-week high. A protective stop can be placed near 25.50."

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