Trinidad Drilling Ltd (TDG.TO)

With respect to oil service companies, drillers, etc. it is a question of when do you want to step in. It depends on the time horizon that you are looking at for your investment. This is a well-run company and will be a survivor in the current environment, but you may be sitting on a stock that doesn’t do much for a year or 2. Not a bad place to have this in your portfolio as a longer-term investment.

(Market Call Minute) Does not want to own oil right now.

The service sector does better as you come off a bottom and the best of those are the land drillers. Has gone from $12 down to $3 and now up to $4.50. 4.4% dividend. These stocks do well several months ahead of the sector in general.

It is a drilling service company with high beta. As capital spending in the oil patch gets cut these will be the first guys to get hurt. Wait for them to come up off the bottom and then miss the first 10 or 20% and then they will go.

As far as energy service companies go, this would rank fairly high. This company has a lot of equipment and a lot of it is a lot newer, so it will recover when energy prices recover. He expects there will be some M&A in that sector.

One of the biggest risks in investing is getting caught looking backwards. From 2000 into 2012, commodities and energy were big beneficiaries of what was going on. They are now in a space where it is going to be more difficult. There is a real risk that this rally is going to fail and oil could go back to $40 or below. Drillers are the most at risk.

He is negative on the drillers overall. Of the drillers, this is one of the better ones, so if you want to or need to be in drillers, this is fine. Drillers are a higher beta or more sensitive market overall. Given that he thinks there is going to be a pullback in crude, you really don’t need to be here.

Likes the management, the story and the joint venture there running with Halliburton. The problem is, all the oil companies are cutting back on their CapX for the next couple of years, and the most impacted by that are the drilling companies.

Going from memory, he believes this is under his EBV -3 and that there are write-offs coming. Any stock that is under this level, there are going to be massive write-offs coming. You want to see those write-offs, see the results, and then see how the stock trades after that.

When you announce a buy back, you may not actually buy them back. One could argue that they do not have the financial flexibility to buy back 10%. In the face of reduced rig counts, these stocks have further to fall. They have the highest beta in a falling market.

Of the drilling companies, he feels this is one of the better ones. Has a newer fleet and has some geographic diversity. Overall he thinks it is a fine name, but drilling is considerably lower. This is a seasonal trade, so buy it and sell it a little bit later.

Just announced they are going to buy 10% of their float. This is a speculation, and trying to pick bottoms is very difficult. Drillers and equipment companies are about the most cyclical in the energy value chain. There are lots of companies that have the financial data going in their favour, because they are acting as they should in a bull market. You are probably better off focusing in those groups.

The energy sector has been pummelled. He had lightened up in general during the summer, but wishes he had sold it all. Still likes this company. They have great prospects. The risk right now is the company’s customers. Their cash flows are going to be coming down, so they will be spending less. The 50% drop in the stock has reflected a lot of that and it is going to be better value. Have a great joint venture with Halliburton. Thinks there are sector risks right now and he is underweight in energy.

There is a good chance that you could see further consolidation in the industry. Doesn't quite know what ramifications the Baker Hughes deal is going to have in the Canadian space. He is reasonably optimistic about the price of oil, but does think we are going to go through a period here where service companies continue to underperform. The first responses will be in the actual exploration and production companies. Thinks there will be more bad news. There are more reductions in drilling coming. This is early. You could probably own it, but you might find better returns somewhere else.

You have to look at 5 or 10 years of data. Other than the crisis, when oil has come down to $80 the stock has settled out just above $5 so that is where it could settle out this time. It is pretty attractive right here. He would have a half position and then add more if it goes longer. Longer term it is pretty attractive.