Another “Contrarian Bonanza” — “world-beating stock that has recently been unfairly taken to the cleaners”

by Travis Johnson, Stock Gumshoe | January 13, 2012 12:23 pm

Teaser pick revealed from Tom Essaye and Martin Weiss

I said I’d keep digging into the picks from Martin Weiss[1] and Tom Essaye[2] as they teased ’em for their Million-Dollar Contrarian Portfolio[3] service, so let’s sniff around and see where the clues send us.

The first unveiling of one of these picks, if you missed it, also included the basic background on the MDCP — you can see that note here if you want to catch up with the rest of the class.

It’s OK, we’ll wait.

Ready? Great, here are the clues for the second “Contrarian Bonanza” pick:

“Contrarian Bonanza #2 is another world-beating stock that has recently been unfairly taken to the cleaners by panicky investors:

“According to Wall Street’s rumor mill, in 2012 this contrarian bonanza could suffer significant costs due to lawsuits over the British Petroleum oil[4] spill in the Gulf of Mexico[5].

“But this company is NOT British Petroleum — and if anybody had bothered to go beyond simply listening to the gossips and busy bodies, the company’s fundamental business is NOT growing weaker …

“It’s growing much, much stronger!

“Income from continuing operations is up as much as 59% in the last six months.

“For the third quarter of 2011, the company reported a mind-blowing 42% surge in total revenues.

“Plus, the company is a leader in new shale drilling technology — a major, game-changing revolution with the potential to make the United States a bigger player in natural gas[6] production than Saudi Arabia is in oil production.

“But the crowd isn’t interested in facts. Rumors are far more exciting. Gossip is far more scintillating. And so, despite the fact that this company is positively THRIVING, its stock has plunged a mind-blowing 40% since last July alone!”

Sounds interesting, right? We like surging revenues and crashing share prices, that tends to be worth checking out.

So what’s the solution? Well, we have a slight difference on some of the clues … but this pretty well has to be Halliburton (HAL)[7]

Which in the third quarter reported 40% revenue growth. And which is a leader in unconventional oil and gas services, including shale drilling stuff. And which has fallen almost exactly 40% since last July (which was a peak), from about $57 to $34. And which was the fourth name tied to the Deepwater Horizon disaster, so they carry the spectre of potential lawsuits and liabilities (don’t know what that potential might be, but it’s almost certainly weighing on the minds of at least some investors).

And really, there are probably plenty of people who don’t want to buy Halliburton just because Dick Cheney was CEO for five years, back when he had a pulse in his pre-VP days.

But that said, it’s dang cheap even for an oil services[8] company, and it does seem, from a quick overview, like it’s very well positioned for the current oil market, particularly with their focus on support for unconventional oil and gas in North America. Of course, Halliburton also has its hands in most of the worrisome oil patches around the world, so they also get lots of one-time write-offs and political backlash — they had to write off some reserves, for example, when the Libyan Revolution put a pause on oil production from that country.

Halliburton trades at about 12X trailing earnings, with heady growth expectations that give them a PEG ratio around 0.4, which is downright cheap even if you worry about liability or falling natural gas and oil prices. Doesn’t mean the stock can’t get cheaper, of course. They have never gotten the premium valuation that their larger competitor Schlumberger (SLB)[9] enjoys, but they’re otherwise priced fairly similarly to some of the other big oil services names you might have heard of, like Baker Hughes (BHI) or Weatherford (WFT) — and I think HAL is much closer to SLB than the others are in terms of profit margins and diversified operations, so you could certainly argue that there’s the potential for HAL to rise a bit to close that valuation gap with SLB.

Which is, actually, one of Essaye’s main points in the ad “presentation” — that he likes companies who are beaten down and undervalued relative to peers, especially if they’re in sectors that are generally undervalued as a whole, and I guess HAL fits those criteria fairly well. Whether or not that means it will pop in the months ahead and recover that 40% decline over the last six months, well, that’s your call to make — it is, after all, your money. Let us know with a comment below if you’ve got any thoughts on HAL or other favorite “contrarian” oil services stocks … and we’ll be on to our next “contrarian bonanza” in a few minutes.

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