Buy Schlumberger (SLB) in my Jubak’s Picks portfolio

Thanks to the euro debt crisis and worries that a slowing China will reduce global demand for oil, I’ve finally got my buying target for Schlumberger (SLB). (How’s that for positive thinking? Lemons into lemonade, I hope.)

I wrote in an April 20 post http://jubakpicks.com/2012/04/23/very-solid-earnings-from-schlumberger-slb-but-im-still-waiting-for-my-price/that at a price of $64 to $65 the stock would be discounting the current weakness in North American oil and gas exploration and drilling. Yesterday, May 17, the stock closed at $64.75. Today, as of 2:30 New York time, shares are trading at $64.49. Seems like a good price to me. So I’m adding the stock to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/  today.

Back on April 20 Schlumberger reported earnings of 98 cents a share. Revenue climbed by 21.7% from the first quarter of 2011.  International margins climbed to 19.1%, well above the 18% that Wall Street had expected. International margins are extremely important to Schlumberger. The most internationally oriented of all the oil service companies, Schlumberger gets two-thirds of its revenue from outside North America.

Which isn’t to say that North America isn’t important—33% of revenue is still a lot of revenue. And that’s where the problem lies for Schlumberger and all oil service companies at the moment. Read more

“A secular sideways market.”

That’s the best succinct description that I’ve heard so far of the stock market we’re in. It comes from Jack Ablin, chief investment officer at Harris Private Bank, at a panel that we shared at the recent Las Vegas MoneyShow.

At the same conference, Sam Stovall, the chief equity strategist for Standard & Poor’s Capital IQ Equity Research Department on another panel I had the privilege of sharing, peered into his crystal ball and offered that the gain on the S&P 500 would be about 4% in 2012. With lots of volatility—so much so that this year, Stovall told Bloomberg, that a 5% move should just be considered “noise.”

It’s reassuring to me these two smart market analysts see something like what I’ve called the “New Paranormal” market http://jubakpicks.com/tag/paranormal/ in my March 2 post. In my paradigm that market is characterized by lots of volatility but not much net gain—Ablin’s “sideways”—and achieving an annual return of 5%–Stovall’s 4% for 2012—should be considered a major achievement. This is still a paradigm under construction (and I’ll post a link for you to get a copy of its latest revision from the MoneyShow on May 16 on my http://jubakpicks.com/ site in the next few days.)

But watching the market action and listening to investor sentiment over the last few days has already suggested a new element to add to the model. It’s what I’m calling the Dangers of Deflationary Investor Sentiment. And I think it’s a major obstacle to achieving even the 4% to 5% returns that characterize a secular sideways market.

So let me start by telling you what this is, why it’s dangerous, and what to do about it. (Along with a few stock picks for execution during this current sell off.) Read more

Report softly but carry a big stick at the conference call. That’s not advice from Teddy Roosevelt but my description of the first quarter earnings report Friday morning, April 20, from Schlumberger (SLB) and the afternoon conference call.

The April 20 earnings report was very solid and suggested that the slowdown in drilling in the North American land market would draw to a close in the second half of 2012 as expected.

But it wasn’t until the conference call that it became how definitely the current oil industry market is playing to Schlumberger’s strengths.

Schlumberger reported earnings of 98 cents a share, matching the consensus estimate from Wall Street analysts. Revenue climbed 21.7% year to year to $10.61 billion, slightly ahead of the Wall Street consensus of $10.54 billion. The first quarter is a seasonally weak quarter because winter weather slows drilling and exploration so earnings and revenue both fell sequentially in the first quarter from the fourth quarter of 2011.

What was interesting to me about the conference call is how much more bullish Schlumberger sounded than Halliburton (HAL), the competitor that reported first quarter results on Monday, April 18. Read more

Everybody “knows” that first quarter earnings growth for U.S. stocks will be anemic this year. The projection for year-to-year earnings growth on the Standard & Poor’s 500 stocks is just 0.93%, according to Standard & Poor’s Capital IQ. That compares to 19.68% earnings growth in the first quarter of 2011.

Logically this means stocks are headed for a correction as companies report their first quarter results beginning with Alcoa (AA).

“Logically,” that is, for most realms outside the stock market. In the logic of the stock market, however, the result is by no means so certain. What everyone knows is frequently discounted in share prices. But sometimes what everyone knows in his or her head isn’t really believed by investors. Intellectually, investors may know that projections for first quarter earnings growth are extremely low, but in their heart—and in their investment actions–they may remain much more optimistic. And, anyway, the earnings results of last quarter are history. For stock prices going forward, the important numbers are companies’ projections—guidance–for the second quarter and the rest of 2012. It’s expectations for future growth that make investors buy or sell.

So what will it be—Up? or Down?—for the market this earnings season?

And what strategy do I recommend? Read more

Schlumberger (SLB) CEO Paal Kibsgaard delivered a decidedly mixed message at the Howard Weill Energy Conference on March 26.

I’d score his presentation two big pluses for investors in Schlumberger and one big minus.

You might think that would wind up giving the big oilfield services provider a positive score, but in this case the market clearly thinks that two minus one is a negative number. The stock has tumbled to $69.96 on March 27 from $79.85 on February 24—a 12.4% decline in a period of a little more than a month during which the Standard & Poor’s 500 Stock Index went up 3.4%.

Let me give you the plusses and minuses and then you can do your own addition. Read more