Thursday, September 11, 2014

Trade: Ensco (ESV)

Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

Today I bought some shares of Ensco at $47.60, as I've indicated I may do to maintain an energy position.  This is slightly higher than the $47 target I was aiming for, but the stock was jumping and with yesterday's Presidential announcement to perform air strikes on ISIS militants in the Middle East, it's possible oil will rebound for a few days.  My target is to have a cost basis below $50.  As I stated in my previous analysis, this stock is below 9 times this year's earnings estimates.  Current predictions are actually for earnings to decrease over the next couple years, which is a worry and risk.  I saw recently how this can affect stock price.  As such, I could never value this stock at 16 times earnings.  However, with a yield over 6% that I'm certain is sustainable, especially with recent increases from a management team that is conservative, I also feel comfortable with the idea that this stock can't fall a lot further and will pay me nicely while the rest of oil has more risk to go down.  This stock is currently rated a 1 and I have a $58 price target - bringing it to 10 times earnings for 2015.  If the company shows expanding earnings in upcoming quarters, this stock has room to run a lot higher while still maintaining a yield that's much better than treasuries.