Raymond James Energy Stat of the Week
by J. Marshall Adkins

Energy Stat: Deep Thoughts by RJ – Is It Safe to Buy Offshore Drillers Again?
May 20, 2013

Conclusion:

"Hello. It's my broker. What? Then buy, buy, buy! Oh, everyone's buying? Then sell, sell, sell!" - Rodney Dangerfield in CaddyShack

We don't have to remind our readers that energy investing has been tough of late. Overall performance has massively lagged the broader markets. We would argue that it is because the perception of a "tight" oil market has evaporated due to the U.S. oil supply renaissance. Nevertheless, within a flattish overall tape for the OSX, it's clear that certain sectors move in and out of favor amongst investors. And, sometimes the only way to win is to be out-of-consensus as the different subsectors oscillate amongst themselves. For now, our conversations with the buy side reflect a noticeable degree of apathy towards the offshore/Brent-leverage theme and a renewed excitement over North America land services in hopes of a utilization-driven rebound. We believe this in conjunction with a rapidly tightening UDW market could set the stage for a reflation trade for the offshore group. We highlight ATW, ORIG, and ESV as a balanced portfolio of high growth, special situation, and high quality to play this theme. We see the swing-for-the-fences trade as NOV, as any sign of additional rig building could cause a massive sentiment shift to the positive.

This is a summary of a much more detailed commentary. Please contact your financial advisor for the full report.

There is no assurance any of the trends mentioned will continue in the future. Past performance is not indicative of future results. Investing involves risk and investors may incur a profit or a loss. Specific sector investing can be subject to different and greater risks than more diversified investments. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The S&P 500 is an unmanaged index of 500 widely held stocks. The Oil Services Index (OSX) comprises 15 of the largest oil service companies. The S&P SuperComposite Oil and Gas Exploration & Production Index (S&P Oil and Gas E&P) consists of all oil and gas exploration and production stocks included in the S&P SuperComposite 1500 Index. Investors cannot invest directly in an index. Additional information is available upon request.

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