A simple wind shift can slow your sailboat to a crawl and require a change of direction to get moving again. Presented with a daunting headwind of impaired domestic industrial activity, and a prolonged re-balancing of rig counts among oil producers, one small-cap manufacturer is prepared to see its sales luff a bit longer.
Shares of Lufkin Industries
Signaling sluggish sales volumes for the quarters ahead, Lufkin's consolidated backlog continued to mount a steady retreat from $413.9 million in 2008 to just $133.8 million ... a 68% crash in this forward-looking indicator of product demand. Manufacturers of mining equipment like Joy Global
CEO John Glick did not gloss over the challenges that remain: "We expect the next quarter to be challenging, with sluggish revenue growth and continued headwinds from low utilization rates and competitive prices that keep margins under pressure into the first half of 2010." Reflecting hope for continuation of recent strength in new bookings for oilfield equipment, Glick added: "While we are not predicting a vigorous rebound in the near term, we are seeing some initial signs that the worst of this market cycle may be behind us."
I agree that demand for oilfield equipment is bound for a rebound in 2010, and expect improving margins to eventually place the wind back in Lufkin's sails. I would like to offer a more resounding endorsement, but the company's latest filings lacked the detailed balance sheet data that this Fool requires to assess any equity in this economic environment. Investors have many quality vehicles to choose from to target a resurgence in oilfield services: from highfliers like Schlumberger
Fool contributor Christopher Barker derives his energy from coffee and is doing his part to keep that industry afloat. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns no shares in the companies mentioned. National Oilwell Varco is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool pumps its disclosure policy out of a folder and onto your monitor.