Oil Services ETFs: Undervalued?
July 9th 2010 at 2:00pm by Tom Lydon
Welcome or not, the BP oil spill has put the spotlight on the oil industry. Although related exchange traded funds (ETFs) have not been hit too hard, a handful of stocks have, and as is always the case in a huge sell-off, investors should have a keen eye for undervalued assets.
According to Tony D’Altorio of Investment U, few people know that the oil exploration industry was in trouble even before the BP (NYSE: BP) oil spill. [BP Oil Spill Fallout.]
D’Altorio cites that back in 2008, drilling rig operation rates were nearly 85% in the Gulf of Mexico. By last summer, that number had dropped to 45%. In addition, the day rates for jackup rigs fell from $168,000 to merely $78,000.
Although the day rates recovered to around $115,000 and operation rates rose to near 63%, the BP oil spill blew up any signs of recovery. [Natural Gas ETFs Win in Oil Spill.]
However, D’Altorio thinks that the market may well have overreacted, providing a great opportunity for investors and other oil companies to scoop up dirt-cheap stocks.
To support his case, D’Altorio notes that two Norwegian oil service companies have already acted on depressed prices. Acergy and Subsea 7 engaged in an estimated $5.4 billion merger, while Noble Corporation acquired FDR Holdings for $2.16 billion in cash.
It is of note that Subsea 7 owned an impressive $5.3 billion backlog when it merged with Acergy, and FDR Holdings had a $3.2 billion backlog when it was acquired. This goes to show that perhaps these companies have been, as D’Altorio thinks, overly sold-off.
If indeed the oil services sector has been overly sold-off, then investors should keep a close watch on related exchange-traded funds (ETFs). By using ETFs, investors should be able to mitigate some of the risk of holding onto speculative stocks, while participating modestly in a potential upswing. [Long-Short Oil ETFs.]
To find ETFs above or below their 200-day moving average, you can put a few of our new tools to use. Our ETF Analyzer allows you to sort any ETF by 200-day. Our Alert tool lets you have price and trend alerts sent straight to your inbox so you never again miss a trading opportunity.
For more information on oil, visit our oil category.
- iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (NYSEArca: IEO)
- iShares Dow Jones U.S. Oil Equipment & Services Index Fund (NYAR: IEZ)
- PowerShares Dynamic Oil Services (NYSEArca: PXJ)
- SPDR S&P Oil & Gas Equipment & Services (NYSEArca: XES)
Sumin Kim contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
