Love Thy Nabors

The land drillers face similar fundamental conditions to those during the heavy truck mini-recession. The drilling stocks today are acting like the truck stocks did in 2005. Land drilling stocks are down and cheap, with a modest fundamental decline starting. The bulk of the sell side is neutral on the sector because of the day-rate downturn. And the rig oversupply has been so well advertised on Wall Street that the drilling stocks are pariahs. This reminds me a great deal of the heavy truck trade.

That said, I wouldn't own Nabors simply because some mo-mo trader has bid up Cummins to an all-time high on declining earnings. (Cummins, by the way, is a long I wrote about in late 2005, when the stock was trading at about $90; its recent price is above $148.) The Nabors story can work regardless of the heavy truck play. But the similarities between the trucks then and the drillers here are too obvious to ignore.

Additional Positives

There are some other fundamental reasons to like Nabors. I believe investors oversimplify the company as a pure North American natural gas play, just as they mischaracterized Cummins as exclusively a heavy truck stock. Nabors should get 50% of its operating profit from oil-related drilling/services this year. As with Cummins, no one seems to give Nabors credit for its commodity exposure and geographical diversification.