Analyst Alert: FMC Technologies (FTI) and Cameron International (CAM) Downgraded by Wachovia

Wachovia downgraded fund holding FMC Technologies (FTI), and Cameron International (CAM), a stock not in the fund but definitely on the watch list; both oil 'service' names. For new readers, I've laid out the case for this sector here. However, I have to agree with the analyst to some degree and have been cutting back exposure to these names a bit here in the past few days.

• Wachovia downgraded oil and gas drilling companies Cameron International (CAM) to market perform from outperform and FMC Technologies (FTI) to underperform from market perform, citing valuation. "We are cautious regarding greater association between oil prices and subsea than oilfield service peers, which could make these names more sensitive to a pullback from what we see as peaky oil," the broker said. "For FMC Technologies, we continue to believe there may be too much expectation regarding subsea margin improvement," it added.

As always, look at any analyst action with heavy doses of salt, and just last week JPMorgan started coverage of FMC Technologies (FTI) at 'Overweight' (again, considering 80% of stock coverage is either buy or strong buy it doesn't mean 'too much')

• "(FMC) has been able to consistently grow revenue about (twice as fast as) the overall subsea market by expanding the scope of its subsea offerings," analyst Kevin G. Pollard said in a note to investors. "This trend is continuing with the growing acceptance of FMC's subsea separation technology, while subsea gas compression and light well intervention offer future growth avenues."
• The use of underwater equipment to handle some of the processing of petroleum products from the seabed may be more efficient than relying on above-water facilities alone.
• The analyst said that although FMC shares trade at a 22 percent premium to nearest competitor Cameron International, the premium is warranted because of the significant and visible long-term growth of FMC's core subsea production business.
• Pollard thinks FMC can grow earnings at a rate of 16 percent over the next five years.

In FMC Technologies, the fund has a 20% gain in just over a month, so I've trimmed the position down to about 0.9% of the fund, with hopes of buying back at lower levels.

While I think the growth rate will be closer to 20% than 16%, the stock is currently trading at 25x 2007 estimates and 21x 2008 estimates. I'd like to be buying back closer to $50 if we get a pullback, or 10% down from here. This whole group has had a very nice run, and I am doing the same strategy with Core Laboratories (CLB), and National Oilwell Varco (NOV). I plan to be in these names to some degree for many years ahead...

Long FMC Technologies, Core Laboratories, and National Oilwell Varco in fund; no personal positions