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In Tuesday's column I mentioned how I was currently underweight the offshore drillers, although I have a significant allocation within the energy sector in my portfolio.
The stocks have for the most part sold off 15% to 30% over the past six months. Sentiment on the sector has eroded due to declining dayrates, falling utilization rates and a rash of recent analyst downgrades.
The contrarian in me, however, is starting to get interested in the sector. Many stocks in the sector seem to have found a bottom. The sector moved up even within Wednesday's market pullback, which was triggered by comments from the Federal Reserve.
I also believe Citigroup made a gutsy and hopefully prescient call Wednesday when it stated the sector looks like it has hit a bottom. The reasons for Citi's long-term optimism seem sound in an environment in which oil prices remain near or above $100 a barrel.
This is a large inventory of deepwater oil discoveries awaiting development and the economy continues to slowly improve. Offshore plays may have to take slightly lower dayrates while supply and demand even out, but things should stabilize and improve by the end of 2014.
I am moving slowly some additional funds into the sector. I am taking small positions, because if there one is thing I have learned over decades of contrarian investing, it is that I have a solid track record of being right over the medium and long term -- but timing is another matter. I tend to be a bit early in these calls.