Precision Drilling (PD.TO)

You see companies cutting back on exploration budgets. This stock may have bottomed out here. It is building a base for the future when the environment gets better. He would not buy it but it might have trading potential over the next year. Conditions can’t get much worse. Watching it before getting back in.

(Market Call Minute) It is beta on steroids. Weak business, weak margins.

He likes the space, but this one has been frustrating. Has been in a downtrend for a number of years, but what is encouraging is that there is a small base forming. You might consider looking at Calfrac Well Services (CFW-T) and Trican Well Services (TCW-T), which he likes a little better. With the rest of the market moving, if this company isn’t moving, maybe you want to get out of it.

Very bullish on the surface sector in general, but less so towards drillers. Trends over the past couple of years have been getting more efficient. While it’s benefited the pressure pumpers, it works against the drillers because it is taking fewer days to drill a well. Overall demand for rigs has been falling. There is still too much equipment available.

The quarter that just came out was pretty good. All the companies with US exposure on the service side did well. It is the most liquid name in the group.

Made a bottom late August/early September. Those levels actually go back to early 2016, so from a risk/reward perspective and where energy is now, the risk/reward is really good. If it can get through $4, you’ll probably see an acceleration. At $5 (Institutional investors can't get in below that price) there will be more buying. Good risk/reward from here, so he would hang on.

This is at a multiyear low. There are concerns about the viability of some of the drillers, which is a bit of a paradox, because if we are worried about the oversupply of oil, oil has to get drilled out from somewhere, and it should be these companies that are doing the drilling. A very cyclical play. Too much of a gamble for him. Prefers Canadian Energy Services & Technology (CEU-T), which is a little more exposed to the US.

He was surprised to see the stock go under 3$ a share. Precision is the dominant drilling company in Canada, they’ve spent a lot of money in the last few years to upgrade technology. It’s very cheap at this price however it’s probably one you would treat as a high risk/ reward and he wouldn’t take a big position, but it’s one that could be significantly higher in a few years.

Doesn’t own any thing in the service side, and is really, really light on energy. He can’t imagine there is much more downside to this, but the rig side in drilling has been tougher. There are no further rigs being added to the drillers, and a lot of them are drilling as much is they were, so prices do have an impact. He would stay away for now.

High debt, almost awash and the sector is in decline. They are big enough to muddle through this but he does not want to get involved.

The energy sector is challenged. He has owned this one on and off over the years. When there is potential growth in drilling this is a go to stock. It seems the lack of pipelines out of Canada will be a problem. This stock will probably not have a material rally. If we have a regime change in 2019 and there is more openness to pipelines we get a change.

A merger between Precision Drilling (PD-T) and Trinidad (TDG-T)? Thinks you can make the thesis to own either one with a preference to pressure pumping, without necessarily making the bet that you are going to see M&A. The biggest argument is personalities.

Very leveraged to what is going on in oil and gas and is hit by lower commodity prices. BV ex-goodwill is $5.90. The problem is, they have debt of about $1.9 billion as of March 31. The equity component is $1.9 billion. This is very close to being a Buy now, but it is vulnerable. The last $15 off on the price of oil can have a significant erosion in high beta energy stocks.

Like many service stocks, this has gone down materially. The pro is that the multiple is looking very attractive relative to what he thinks it could do in 2018. The con is that within services there is always a lot of subsectors, and the one with the least pricing power is, he thinks, drilling. Unlike pressure pumping, where equipment is in shortage, he doesn’t see a lot more upside in the day rates for drilling equipment.

(A Top Pick July 5/16. Up 39.79%.) *Short* (Pairs trade with a Long on Secure Energy Services (SES-T).This is a contract driller, and the issue with contract driller’s is that crews are becoming more and more efficient. Effectively they can drill and then move on to the next one.