JBL: Ahead of the Curve

Amerada Hess has this year's oil hedged at a selling price of around $33, while crude oil sold during that period around $50. It has lost about $720 million in exploration and production earnings for the first nine months of 2005. Earnings were also down due to hurricane disruptions in the gulf, and it lost some production in Europe due to natural decline and maintenance. These declines were offset by new joint-operated fields in Asia and Russia.

The good news is those hedges come off next year.

Amerada Hess consensus estimates are $18.69 next year due to the hedges coming off. This means that Amerada Hess has a forward price-to-earnings multiple of under 7. This company is cheap, as in real cheap.

If you were to put a forward multiple of a more standard sector number of 10, you get a stock of $186.90, and almost a 50% increase from Friday's close just by putting a normal valuation on the stock.

You will make money in oil stocks, the sector has too much potential, and the key is to find a way to make the most money. I like Amerada Hess and bought the stock this past week just for these very reasons.

Oil in the Waters!

The low fruit has already been picked when it comes to oil discoveries. You can stick a straw in the ground in Saudi Arabia and find oil. Oil in the rest of the world is getting harder to find, and even harder to bring to the surface.

Transocean (RIG Quote), headquartered in the tax haven of the Cayman Islands, is the world's largest offshore drilling company, with a fleet of 92 offshore mobile drilling units. Keeping production constant is becoming very difficult for the big oil companies. Transocean is a natural play for the sector.