Is oil equipment a better pick than oil?

Cameron International makes equipment for oil and gas exploration.

By Jim Van Meerten Jan 8, 2010 4:08PM
Oil © Comstock/CorbisWhen I start looking for new stocks to add to my Wall Street Survivor portfolio, my process begins on a purely technical price-momentum basis. 

I look for the stocks that are hitting the most new highs and begin a filtering process until I'm down to just a few. I then look for further reasons to narrow my list.

This week when I sorted on Barchart for the stocks hitting the most highs, Cameron International (CAM) rose to the top of my list. Cameron makes the equipment that oil and gas exploration companies use to explore for new fields. 

While oil and gas prices bounce around all over the place, the demand for the equipment to find new fields is far more stable. Whether oil prices are high or low, companies need to continue to explore and buy more exploration equipment.

Another plus for this company is something that scares me about playing around with oil prices. There is short interest in oil and gas contracts, and I've seen the effect that press releases can have on a stock when the shorts try to cover their positions to stop the bleeding in a rising stock market. 

Since August, the short interest ratio in this stock has dropped from 3.6 to 1.5. Simply put: Fewer people each month are shorting the stock, which is a pretty good vote of confidence from the short sellers. Short sellers tend to be more sophisticated and savvy than the rest of us, so it's nice to find a stock that fewer of them are shorting.

CAM has made 17 price advances in the past 20 trading sessions and is 5 for 5 recently. It has seen a nice price appreciation of 26.32% over the past 65 days. A dozen of Barchart's 13 technical indicators are signaling buy, for a 96% overall technical buy rating.

Twenty-four Wall Street brokerage firms follow this stock, and13 have buy recommendations with no strong sell calls. The analysts are expecting a 10% increase in revenue next year, with an annual EPS growth rate of 12% per year for the next five years.

Wall Street Survivor readers give the stock a 5/5 Survivor Sentiment rating, and Motley Fool readers think the stock will out perform the market by a vote of 965 to 18, with the All Star members giving it a vote of 212 to 3. Even the Wall Street journalists Fool follows like the stock 15 to 0.

I've got some solid reasons to like it:
  • The stock is hitting new highs better than 50% for the recent trading session.
  • Fewer of the savvy short sellers are shorting this stock each month.
  • Brokerages have buy recommendations out there without any major trash talking.
  • Other major Internet sites seem to have confidence that this is a good investment.

Recommendation: I'm adding Cameron International (CAM) to my Wall Street Survivor portfolio around $44.50 with a stop loss at no lower than $40. I'll be moving that stop loss weekly.

 

At the time of this writing, Jim Van Meerten had no positions in CAM.

 

Jim Van Meerten is an investor who writes on financial matters here and on Financial Tides. Please leave a comment below or email JimVanMeerten@gmail.com

Tags: oil
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