Trinidad Drilling Ltd (TDG.TO)

(A Top Pick June 8/15. Down 46.56%.) It is really a terrible situation for service stocks. Not overly optimistic on the service space. There is still so much latent capacity, especially with the drillers.

(Top Pick Apr 6/15, Down 64.27%) They usually lead a recovery. Given the magnitude of the drop in oil there was a reduction in drilling.

A good example of a Value stock. Trades at a low multiple of BV. Trading at 5.6X PE. The challenge with a stock like this is that all their metrics tend to be backwards looking. They are based on what they have historically been able to do, not necessarily what the next 12 months will look like. It is too late to Sell.

We have the least amount of drill rigs in North America in years. Earnings per share in these companies are lowering. Timing is going to be quite tough, but crucial on how it works. It could be the end of the year before boards meet to discuss turning the taps back on. This company has been increasing debt as they make acquisitions.

(A Top Pick Oct 21/14. Down 65.57%.) Any energy stock in the past year has been a disaster, and anything in the drilling of the services side has been even worse. He wasn’t expecting oil prices to break down as much as they did. Debt levels are still relatively high and cash flow is still drying up. Thinks they will survive, but he worries about the guys with the bad balance sheets.

These are hard times. If you think oil companies are having a tough time of it, the service companies are in a real bind. This one is holding on by its fingertips. Unless things turn around in the next quarter or 2, they are going to have a real tough time. If we get back into $60 oil, then you are going to see things pick up again. In the meantime, this is a high risk situation. Dividend yield of about 8%.

There will be more consolidation in the sector. Be careful of companies with debt. If we get a recovery in the oil price you will get a lot more drilling.

One of 2 premier drillers in Canada. Believes it will be a survivor and will thrive going forward. He would like to see some stability in the sector. Drillers and service companies are still getting a lot of pressure from the E&P companies to reduce their costs. That means smaller margins for the drillers and a lot of competition. This one has a lot of torque, so when things start to turn up, you might miss the first 10%-15% move in the stock price, but it will have lots of room to go. If you have a five-year time frame, now is probably a time to initiate part of your position.

(Top Pick Aug 1/14, Down 68.02%) Clearly he was not bearish enough on oil. The drillers looked pretty good back then. When oil dropped off the drillers were hit harder than anyone. He is not adding because the damage is not finished.

Drillers have gotten incredibly cheap running at about 40% of tangible book. At some point down the road, people will start drilling for energy again and these companies, like they always do, bounce back hard the other way. If you are willing to have a long enough view, it is at a very cheap level. It could take a year or 3 months before you see profits. Very difficult to know.

Thinks they did the right thing in their latest acquisition. It should have a positive impact on the stock.

The stock is cheap - 55% of book value. Balance sheet is okay. It has no earnings and that is why it is trading cheap. Unless something is going to change that then he does not know where the earnings are going to come from. Today’s acquisition is a good idea. If it will be accretive in any way then by all means go ahead and buy it.

Energy stocks have done tremendously well from January through to May, which is their seasonal strength. This one turned down as soon as May hit. From May through to about August tends to be a weaker period. You can get a seasonal uptick in energy stocks from about August into September, the height of the driving season. For now it is best to stay away from this.

He likes land drillers because they outperform coming out of a down market. There is a concern about their debt to cash flow, but it is trading at a really cheap multiple, less than during the financial crisis. He is seeing rigs going back to work. The demand for rigs will start to go back up and people will stop focusing on the debt issues.

There is a whole host of companies in drilling. The difficulty right now is that so many of these companies have crappy balance sheets, because they levered up when times were good. This can be a good sector to invest in, but you have to watch because a lot of the companies have revenues that are going way down, while the debt level is staying the same or going up.