Schlumberger (SLB) Selloff has me Buying into Oil Services

Schlumberger (SLB) had a nice quarter but weakness in the US Gulf/natural gas is prompting a sell off. 35% growth for a company this size is nothing to sneeze at. Do you notice the change in character of this market since last Thursday? Now people are finding excuses to sell instead of buy. I've mentioned to stay away from anything to do with natural gas since its a domestic market, not international like crude. So this sell off creates an opportunity.

• HOUSTON, Oct 19 (Reuters) - The world's largest oil service company Schlumberger Ltd (SLB) said on Friday third-quarter profit climbed 35 percent, topping Wall Street expectations, but soft North American results knocked its stock price lower.
• Schlumberger had been mostly insulated from the weakness in North America that has hurt peers like Haliburton and Baker Hughes. Schlumberger relies on fast-growing, more profitable international markets to drive its performance.
• Earnings rose to $1.35 billion, or $1.09 per diluted share, from $1 billion, or 81 cents per share, a year earlier. Wall Street analysts on average had expected the company to report profit of $1.06 share, according to Reuters Estimates.
• Revenue for the Houston-based company rose nearly 20 percent to $5.93 billion.
• "It's not a blowout, but it's a good, solid quarter considering the weakness in North America," Mark Urness, analyst with Calyon Securities, said. "WesternGeco (Schlumberger's seismic unit) and Latin America would be the two highlights."
• Growth was driven by Latin America, Russia, China and Indonesia, Schlumberger Chief Executive Andrew Gould said in a statement. (shocker eh??)
• In North America, weaker pricing for pressure pumping in certain areas and a sharp drop in revenue from the Gulf of Mexico offset increased activity in Canada, Gould said.
• In North America, 2007 third-quarter revenue fell 3 percent to $1.30 billion, while pretax operating income slid 15 percent to $350 million.
  
• In Latin America, revenue jumped 37 percent to $863 million and pretax operating income soared 58 percent from a year earlier to $204 million.
• Revenue for Europe, Russia and Africa climbed 28 percent to $1.69 billion on a 38 percent gain in pretax operating income of $495 million.

So again, the same old story - North America weakening; international markets booming. From AP an ominous quote: "Production decline rates in mature areas and continuing project delays will inhibit non-OPEC supply increases, while personnel and equipment shortages will restrict the industry's ability to respond," Chairman and Chief Executive Andrew Gould said in a statement.

Also on a related note: Schlumberger's seismic services arm, WesternGeco, posted revenue of $794 million, an increase of 20 percent over last year. The ongoing rush to explore for new sources of oil and gas in deeper waters and more rugged terrain has been a boon for companies like Schlumberger that provide seismic services. (I mentioned two seismic plays a few weeks ago here)

I am taking this opportunity to buy more of trio of oil service companies in my basket; this news does create some risk especially for National Oilwell Varco (NOV) but hopefully this news let's out some of the stream out of expectations - but its a risk in that name in particular.

The stocks have finally pulled back in their charts to a somewhat meaningful support level, their 20 day moving average. Not as strong as the 50 day moving average but in an uptrend, I try to buy at the 20 day and then if the fall continues to the 50 day, buy in larger scale. I have been waiting (impatiently) for some trigger for these to sell off - if they continue down to their 50 day moving averages I will increase the positions further - the fundamentals have not changed 1 bit, although the valuations are a lot more stretched then they were when I started buying in August.

1. Increased National Oilwell Varco (NOV) from 180 shares to 400, an increase of 220 or 122%. This takes the position up from 1.2% to 2.6% of the fund. The stock (which got a rare bullish article in Barron's this weekend - curse?) is down from from a high of $82 Monday to around $73, or a drop of 11% from its high of the week. Technical support, 20 day = $74, and 50 day = $69. If we get a drop to $69 I will add more.
2. Increased FMC Technologies (FTI) from 225 shares to 450, an increase of 225 or 100%. This takes the position up from 1.2% to 2.4% of the fund. The stock is down from a high of near $65 Monday to around $60, or a drop of 7.7% from its high of the week. Technical support, 20 day = $59.50 and 50 day = below $55. I have enough FMC Technologies for now unless it drops down to the mid $50s.
3. Increased Core Laboratories (CLB) from 70 shares to 120 shares, an increase of 50 or 71%. This takes the position up from 1.1% to 1.6% of the fund. The stock is down from a high of $142 Monday to around $132, so a drop of 7% from its high of the week. Technical support, 20 day = $130, and 50 day = below $122. I will look to add more if we see the low $120s.
   

This has increased my oil services basket from 3.5% of fund to 6.6%. Earnings for NOV and CLB are out on the 24th and FTI on 29th.

So much for that good Google (GOOG) news driving the market, eh? Again as I stated last Thursday, that intraday reversal changed psychology. Most market averages are now sitting at support levels I mentioned a few days ago. If we don't bounce off these levels, then the character has truly changed for the worse and I need to apply a whole lot more of the short ETFs.

Long all names but Schlumberger in fund; long National Oilwell Varco in personal account