NEW YORK (TheStreet) -- Buying any oil services stock that is trading near or below its post-bubble lows set in late-2008 into early-2009 is like trying to "catch a falling knife". This is the investment landscape with Nymex crude oil futures down 38% year to date but 90% above its post-bubble low of $33.20 set in January 2009.
Here are four oil services stocks that are trading at or significantly below their post-bubble lows. Diamond Offshore Drilling (DO) is down 38% year to date and is 39% below its post-bubble low at $49.28 set in March 2009. Noble (NE) is down 44% year to date and is just 2.5% below its post-bubble low at $16.80 set in December 2008. Transocean (RIG) down 58% year to date and is 55% below its post-bubble low at $41.95 set in December 2008. Tidewater (TDW) is down 45% year to data and is just 0.2% above its post-bubble low at $31.09 set in March 2009.
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When you have this wide a divergence between the price of a commodity and the companies that extract it, the weak stocks may be the better investment than the commodity itself, but beware of the risk of catching a falling knife.
Diamond Offshore ($29.91) was a $16 stock back in November 2003 which is a level at which to add to positions if you decide to enter a "good 'til canceled" limit order to buy weakness to the Dec. 1 low at $29.00. The near term upside is to a key technical level at $33.75.
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Noble ($16.38) was a $15 stock in May 2004 which is close to Friday's low at $15.83. If this stock stabilizes the near term upside is to a key technical level at $28.75.
Transocean ($18.72) is trading at a 20-year low at $18.46 which leaves investors without a level at which to buy. This is a highly-risky speculative investment with near-term upside to a chart price-gap at $23.09.
Tidewater ($31.15) was a $26 stock in May 2004 which is a level at which to add to positions if you decide to enter a "good 'til canceled" limit order to buy weakness to the Dec. 1 low at $29.70. The near term upside is to a key technical level at $38.90.
Let's look at the weekly chart for crude oil keeping in mind that these stocks are at or below the lows seen.
Courtesy of MetaStock Xenith
The weekly chart for crude oil shows the Fibonacci retracement levels from the July 2008 high at $147.37 per barrel to the January 2009 low at $33.20. Strength above the 61.8% retracement at $103.77 could not be sustained four times, the last between March and July this year. The low end of the range had been the 38.2% retracement at $76.84 since August 2011 until the end of November 2014. The downside based upon this analysis is to the 23.6% retracement at $60.17.
Note that oil has been below its 200-week simple moving average at $95.85 since the end of August after being like a magnet since mid-2009.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
TheStreet Ratings team rates DIAMOND OFFSHRE DRILLING INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate DIAMOND OFFSHRE DRILLING INC (DO) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity."
You can view the full analysis from the report here: DO Ratings Report