oil service companies

**tuabie** Sun Aug 21, 2005 1:50 am

oil service companies
Blast,

What do you think of the oil service sector? How does it compare to other oil related groups like oil refinery, exploration etc in terms of longer term potential?

**hai_wei** Sun Aug 21, 2005 9:53 pm

Hi, i am not HH, but here is my 2 cents

I don't prefer oil service and refinary company. Since the high oil price is starting to hurt the relative industry. Actually, these relative can't benefit from the high price. And with the high price, the usage is going to decrease finally.

**shu_wd** Sun Aug 21, 2005 11:13 pm

but is it true that high oil price will spark more exploration & related service?
refiner maybe not benifit but serive company certainly do, just see HAL recent quaterly results...

just my 2cents

**tuabie** Mon Aug 22, 2005 12:49 am

That's exactly what I was thinking: high oil price sparks more exploration. And because finding more oil is always difficult, the service companies will benefit high oil price longer than the refinery companies.

What's your take on this, blast?

**blast_investor** Mon Aug 22, 2005 12:50 am

Hi tuabie:

I do not like oil service stocks. No doubt that oil service business is booming with great outlook. However, valuation of many oil serice stocks are pretty high and they are not value stocks. For example, SLB PE = 30, HAL PE = 50.

The main risk in value investing is high prices. I would avoid high priced oil service stocks at this moment.

**tuabie** Tue Aug 23, 2005 12:47 am

Thanks Blast for the reply. The main reason I was interested in the oil service stocks is because a lot of them have very low PEG. For example, ESV, DO, NE, GSF all have PEG below 0.6., which is in similar range of PEG than ARLP (although not in the same sector). Do you prefer low PE vs low PEG? I guess low PEG stock doesn't make it value stock...

**blast_investor** Tue Aug 23, 2005 8:12 pm

Hi tuabie:

PEG metrics definition: PE divided by growth.

PEG is important metrics in growth investing method. I do not believe PEG metrics is important in comparing value stocks, or stocks in different sectors.

For most value investing purposes, growth is not the focus. Value investing is mainly focused on price verses current earning/asset. Therefore, PE is more important measurement than PEG for value investing.

The growth number is subjective, and I guess the PEG number you mentioned is from public Yahoo finance. The Yahoo growth number behind PEG number is from Wall Street analysts' growth projections. I would not trust Wall Street analysts' growth projections for investing purposes. Many times their projection is way off from reality.

The published PE from Yahoo financie itself is distorted as well across different industries/sectors because different industries have different accounting situations. Some sectors tend to under-report its true earning power in published PE while other sectors may over-report its true earning power. Therefore, comparing published PE between different sectors could be very wrong.

All above problems in PE or growth projections make published PEG comparison among different industries non-informative or even useless.