From Cabot Wealth Advisory 5/21/13 Sign up for free Cabot Wealth Advisory
The current market remains in great shape, although after a nosebleed run for the major indexes and many leading stocks I can’t say we’re at a pristine buy point. Still, one of the unsung bullish characteristics of this year’s advance has been plenty of healthy rotation—for two or three weeks a couple of sectors will light up the sky, but when those groups pause, others take their place and get going. That’s what has kept the market advance in such good shape.
Thus, for my stock idea in today’s Wealth Advisory, I look for stocks and sectors that haven’t run straight up for the past six or seven weeks. Instead, I looked for groups that money is just starting to rotate toward after a few weeks of back-and-forth action. And one that fills the bill is oil service stocks.
If you examine the S&P Oil & Gas Equipment SPDR (XES), you’ll see a peak in mid-February, followed by a couple of healthy shakeouts during the next two months. But the fund found support at its 40-week moving average and is now working on its fifth straight up-week as it tags new-high ground.
Fundamentally, oil prices aren’t advancing, but they’ve generally traded in the $85 to $100 per barrel range for the past year. And, of course, natural gas drilling is going nuts here in the U.S. thanks to the various shale plays. That leads to a healthy environment for the sector.
So how can you play it? One easy way is to just buy XES, or if you prefer, go with the Market Vectors Oil Services Fund (OIH). Both will give you exposure to the group as a whole.
As for individual stocks, I like Seadrill (SDRL), the dominant deepwater driller in the world. It has a huge backlog and tremendous cash flow, and management is looking for big increases in that cash flow in the years ahead as the company adds to its rig fleet. The stock is also punching out toward new high ground, and the dividend (paid quarterly) is north of 8%. The major risk here is that earnings are due out May 28, so you might want to keep the position small ahead of the earnings report.
The stock trades with plenty of volume, telling you big investors are involved!
Editor's Note: Michael Cintolo is the editor of Cabot Market Letter, which as been uncovering stock market leaders since the 1970s, like American Medical Systems back in the late 1970s--up 1,097%, or Triangle Industries--up more than 150% in the late 1980s, or Yahoo!, Amazon and more in the late 1990s! And Mike is using Cabot's time-tested market timing and growth stock picking system to select the very best stocks of this bull market, like Green Mountain Coffee (GMCR). Don't miss another issue! Learn more.
|SeaDrill Limited (SDRL)
Hamilton, HM 08 Bermuda
|Index Membership: N/A
Sector: Basic Materials
Industry: Oil & Gas Drilling & Exploration
Full Time Employees: 8,700