In part one of this series, I discussed the best ways to play the hurricane season with a few "onshore stocks." Today, I am delving into the offshore sector, which is where I think there is more upside, as the baseline sector fundamentals are much stronger. All of the offshore picks are levered to the energy sector, and with today's persistent, annoyingly high energy prices; it is a good time to be operating in this field.
And let me repeat my statement from part one regarding the types of trades these are. We're looking for these stocks to have a short-term pop off of news of a storm, not as longer-term fundamentals plays, unless otherwise stated. Any hurricane portfolio should strongly overweight the offshore plays.
Hornbeck Offshore Services ( HOS): Drilling rigs and platforms are not self-sustaining, especially during hurricanes. HOS provides offshore support vessels to the industry, and its services and vessels are in high demand before and after any rough weather. The company has the youngest and second-largest OSV fleet in the Gulf of Mexico. It owns 35 new-generation vessels, plus 10 older conventional non-core vessels, with plans to growth the fleet to 65 by 2010. I like this one short and long term. Bristow Group ( BRS): This is the "let's get out of Dodge" (before the storm hits) play. Bristow provides helicopter services to the offshore-energy industry. It owns and operates 548 helicopters, with another 25 on order. Energy companies use its services to both evacuate and bring employees back to oil platforms. It is an operating duopoly that controls two-thirds of the helo-transport market, along with CHC helicopter (privately-held). Oceaneering ( OII): This company is the market leader in Remotely Operated Vehicles (ROVs), with 210 vehicles. These vehicles are unmanned machines that perform a variety of tasks in underwater areas that are too dangerous for humans, such as pipeline repair in the depths of the ocean after hurricane damage. I like to think of ROVs as a benevolent Arnold Schwarzenegger in Terminator that works to help repair damaged oil wells.
Tidewater ( TDW): Helps to re-supply offshore E&P companies. It provides marine supply vessels and support services across the spectrum of needs for energy companies (exploration, development and production). The services include towing and anchoring of offshore drilling rigs and equipment to prevent storm damage. Gulf Island Fabrication ( GIFI): This manufacturer of offshore drilling platforms and energy production structures also provides services that include offshore interconnect pipe hook-up, inshore marine construction, and the manufacture and repair of pressure vessels. It also produces and repairs pressure vessels used in the oil and gas industry. So, if a hurricane hits and an oil platform needs slight repair work or a completely overhaul, GIFI is the call. Now let's look at an example of how some of these stocks might be played. Oceaneering makes a good example: Hurricane Katrina and Rita happened during August and September of 2005, OII's third quarter. The stock hit a low of $21.10 in August and rallied to a high of $26.70 in September for a quick 27% return. Further, the stock reported strong overall third-quarter results on Nov. 1, 2005, with EPS of $0.66 vs. a consensus of $0.60 and above management guidance of 0.55-0.65. How did OII do after hurricane Andrew in 1992? Recall, this monster storm caused $26.5 billion in damage in the United States, mostly in Florida and Louisiana. Andrew hit the coast of Florida on Aug. 24 and proceeded on to Louisiana over the next few days. On Aug. 24, OII was trading at $14 and closed at $16.50, or 18% higher, in just one week. Nobody is hoping for a bad hurricane season, but let's invest in companies that can help people can back on their feet and make a few bucks doing it. Tomorrow, I'll discuss which stocks and companies could get hurt from hurricane damage, and possibly be good short plays, or at least stocks to avoid.