Reviewed Sep 07 Unchanged at
Comment: On the one hand, Briefing.com was encouraged by the recent announcement that Sante Fe International (SDC) was acquiring Global Marine (GLM) in a $3 bln stock deal in that the deal signals that the group has fallen so far that it's now being viewed as a value play... On the other hand, GLM shareholders are being asked to accept a very modest premium - especially for a stock that was 58% below its 52-wk high onn deal day... Briefing.com assumes that Rose, GLM's CEO, willing to accept the discounted offer in belief that GLM shareholders will be better served long-term by owning part of a more globally diverse oil company... And we tend to agree, as there are tremendous synergies between Sante Fe and Global Marine... Should oil/natural gas prices remain depressed (natural gas prices recently fell to below $2.40 per btu, down from a high of over $10), we're apt to see more such deals as the long-term outlook for the energy industry remains quite promising... Right now group being hit hard by the soft natural gas market and by the sluggish economy... However, this week's NAPM data just another sign that the worst of the economic downturn is behind us... Consequently, don't be surprised to see more and more traders start to build positions in anticipation of a gradual economic recovery which begins early next year... One group likely to benefit from such assumptions is the beaten down oil services industry... Unlike in years past, group suffering less from excessive capacity/over-drilling than from the general economic sluggishness... As the economy turns, so to will the group... And with the sector now trading at about 20x earnings, we could see some bargain hunting begin to emerge soon... Until we get more consistent evidence of an economic upturn, Briefing.com will leave the rating unchanged, but investors will want to keep a close eye on this beaten up group, as a reversal could be just around the corner.
Stocks: Baker Hughes (BHI), Cooper Cameron (CAM), Global Marine (GLM), Halliburton (HAL), Nabors (NBR), Noble Drilling (NE), Schlumberger (SLB), Smith International (SII), Tidewater (TDW) and Transocean Offshore (RIG).
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