At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and worst and sorriest, too.
And speaking of the best ...
One of the best stock pickers in the business took a look at the oil services industry recently -- and liked what it saw. On Thursday, Banc of America initiated coverage on a slew of companies in this sector, slapping buy ratings on the majority. The rundown goes like so:
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Banc of America Says
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CAPS Says (out of 5)
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Halliburton (NYSE: HAL)
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Buy
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****
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Baker Hughes (NYSE: BHI)
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Buy
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****
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Weatherford International (NYSE: WFT)
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Buy
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****
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Schlumberger (NYSE: SLB)
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Buy
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*****
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Smith International (NYSE: SII)
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Buy
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*****
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Grant Prideco (NYSE: GRP)
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Buy
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*****
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Dril-Quip (NYSE: DRQ)
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Buy
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*****
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FMC Tech
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Buy
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*****
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National Oilwell Varco
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Neutral
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*****
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Basic Energy
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Neutral
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*****
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BJ Services
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Neutral
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*****
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Complete Production
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Neutral
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*****
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Core Labs
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Neutral
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*****
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Key Energy
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Neutral
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**
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Investment thesis
Basically, Banc of America sees economic growth in populous countries such as China and India driving increased demand for hydrocarbons, even as locating and extracting these fuels becomes more difficult. Combined, these two trends spell "more revenue opportunities for service companies." How much more? The analyst predicts a 16% increase in spending on oil services this year, and an additional 10% hike next year -- both numbers far in excess of ordinary GDP growth.
Sounds like a logical thesis to me -- for the sector, if not necessarily for the individual stocks. Before we get carried away, let's take a look at Banc of America's stock-picking record. According to Motley Fool CAPS, B of A sports a 93.53 CAPS rating -- putting it well within the top 10% of investors. As for the accuracy of individual picks, however, the bank scores just 53.32% -- better than a coin toss, but not by much.
When I look at those numbers, especially in light of the collective intelligence of the 60,000-odd investors who have rated stocks on CAPS, and who give practically all of these stocks either four or five stars, this tells me that Banc of America is most likely calling this trend right. Demand for energy is on the rise. Many of the companies that service this demand will prosper.
Moreover, while B of A gets nearly as many calls wrong as it does right on stocks in general, the bankers seem to have a knack for picking oil stocks in particular. Reviewing the bankers' active recommendations, I note that B of A's bullish picks on many Big Oil names -- Chevron, ConocoPhillips, Exxon Mobil, and Total, to name just a few -- are all "in the green." While ordinarily I'm leery of analysts who initiate coverage on an entire sector all in one fell swoop, in this case, I'm making an exception. These recommendations are worth listening to.
Of course, Banc of America doesn't have a monopoly on savvy oil-industry analysts. The folks over at Motley Fool Hidden Gems have been racking up a pretty impressive record of their own. Every one of their five recommendations in the oil industry is currently outperforming the market, and on average, each of these recommendations has produced 75% returns since recommendation. Want to learn more -- and in particular, want to know which oil stocks we like? Get complete access to the entire list of recommended companies when you claim a free 30-day trial of the service.
Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked 805 out of more than 60,000 raters. Total SA is a Motley Fool Income Investor recommendation. The Fool has a disclosure policy.
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