Massachusetts Institute of Technology's Sloan School of Management
. Hall joined
Credit Suisse First Boston
in 1987 as an analyst in the technology group. Prior to that he was an engineer in program management at
Industry Outlook and Style
Hall is extremely bullish on the energy equipment and services sector, describing the industry's fundamental outlook as the most attractive it's been in more than 15 years. Projecting 18% - 23% upstream capital spending expansion in 2001, he explains that though he and his group have modeled at the low end of the range (18%), they "heavily favor the upper end of the range."
Hall asserts that the budget surveys completed by oil companies are poor predictors of actual spending; instead, he looks at the projected financial performance of their various customers while factoring in past spending behavior to determine more accurate spending ranges. He says the integrated oil companies are beginning to put out signals of increased spending as their cash flows have exploded while plowback ratios (how much money they're plowing back into capital spending) are pushing record lows. With plowback levels currently so low, they can only go up, especially since companies have more cash on hand, he says.
Plowback levels at the independent exploration and production companies are also below average, though they are not as low as those of the integrated oils, the analyst notes. The Credit Suisse First Boston analyst predicts they will return to more normal levels over the course of the year.
While Hall concedes that spending by the state-owned national oil companies outside the U.S. is difficult to forecast, he believes that many are presently either capacity-constrained, or very nearly so, and will therefore have to spend if they hope to avoid losing market share. The 18% - 23% range for capital budget increases reflects a weighted average for the three producer groups (integrated, independent E&P, state-owned nationals).
Two stocks that Hall favors in the group are
and, on the offshore drilling side,
Santa Fe International
Varco is the analyst's top pick, because it is relatively cheap and because the analyst expects it to "hit the sweet spot" in 2001.
Santa Fe, notes Hall, has had some downward earnings guidance and has been "beaten down with a lot of misperception." He believes the company is a good value now and describes it as having "an excellent set of assets," including good management and leadership. (CSFB has done investment banking for both Varco and Santa Fe International.)
Favorite stock for next 12 months:
"Varco is the top pick because it's later cycle; it should hit the sweet spot as we move into 2001, and the valuation is cheap relative to where it is vs. the group."
Rate Their Stock Picks:
Which stock do you like best?
Hall: Varco International
Simpson: National Oilwell