Kudo’s to Nichole Decker of Bear Stearns for being on the ball with a new buy on Murphy Oil.
For those of you who think I only bash analysts that is not true at all, I bash bad analysts who, unfortunately, are plentiful. Take LNG for example. It may be the most highly rated company on the market with Banc of America and Wachovia just weighing in with even more buys.
There is just one problem with LNG: They don’t make any money – ever!!! Not even this year!
So the sheep followed this one all the way up from $24 in May to $43 in October. While sales may be up for this 100% company (the principle bet here is on future terminal building that may or may not happen) losses are actually accellerating!
Well, they kind of made a profit of $7.7M for the last quarter compared to a loss of $5.6M last year but that was because they made $20M on “an investment.” If it wasn’t for that investment they would have lost $12.3M on $729,000 in sales… “BuyBuyBuy” say the analysts!
Don’t worry, they still have $900M in working capital, I just hope they haven’t been playing the oil market with it!
Anyway, this isn’t about them – this is about a good company called Murphy Oil who’s sales have gone from $4Bn to $6.5Bn to $8.5Bn to (est.) $11.5Bn over the past 4 years with profits from (per share) .54 to $1.5 to $2.66 to (est.) $5.1 – Now that’s a company!!!
What has their stock done during this incredible run? $20, $30, $37, $48. OK, so eps is up 10x and stock is only up 2.4x
And this company is no Exxon annuity game, these guys are E&P wildcatters who have 5 major drilling projects in the works and if just one of them hit, Ol’ Jed’s gonna be a Billionaire! Even if every one of these guys come up dry (and these guys have had a run since 1998 of being amazingly good at their jobs) the company is still growing at 20% with no end in sight!
The stock, which historically has outperformed the industry by a good margin, is currently underperforming the industry by 1/2.
They have a stake in Hibernia (Canadian offshore project) which is already looking good and the p/e of the company is 11, but I think that’s based on last year’s earnings (so hard to tell what metric people are using) which means it may be 9 or less at this price by the year’s end.
What I love most about this company however, is that, unlike LNG, there are 8 buys, 8 holds and a sell on this stock. On October 18th CSFB kept their sheep out of this stock’s bottom with a neutral rating, already leaving a 20% gain on the table so we’re going to give a big Baaahhh! to those guys!
So once again, mega kudos to Ms. Decker for pointing out this one. Despite my rule against buying oil during an option week, I am definately picking up a little of this one today.
Yesterday they punched through the 50 dma like a paper wall and the next resistance is the 200 dma @ $49.50. If they go through that on strong volume they have a clean shot back to $55 so I will be looking at next month’s $45 calls which were $4.4o yesterday (a $1.15 premium).
Remember, all oil bets are off if Valero is down!!! I think today will be another good day for oil because it snowed in the midwest and it’s chilly in NYC (yes, that’s all it takes!) although the draw in inventory yesterday was the result of a decline in imports, not an increase in demand so be careful out there!
