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AlphaProfit Newsletter: February 20, 2006 Bulletin
Subject: Buying Into Energy Services
Dear Valued Subscriber,
February has been a difficult month for Fidelity Select Energy Service (FSESX). After gaining 19.5% in January, the fund on a month-to-date basis is down about 12.5%. As commented in the Newsletter documents since the January 24 Bulletin, the backdrop of declining commodity prices has resulted in a decline in share prices in the energy service group. Oil closed the week south of $60 per barrel after closing January at $67.92 per barrel.
Oil traders have focused on inventory buildup as warm weather in January reduced demand. Inventories of crude oil surged 4.9 million barrels last week, substantially above forecast. Meanwhile, tension between the U. S. and Iran continues. The U. S. is considering sanctions because of Iran's atomic energy program. However threats to supply disruption, for the moment, took a back seat as inventory overhang drew investors' attention.
On the earnings front, disappointing results and cautious earnings guidance for the first-half of 2006 from Transocean*, an offshore contract driller, also put pressure on share prices in the energy service group. The company cited cost pressures and an aggressive maintenance program. On a brighter note, Transocean acknowledged strength in daily usage rates for its rigs. We believe the less-than-robust earnings forecast is specific to Transocean and is not indicative of an industry-wide issue. As noted in the February monthly report, companies like Schlumberger, Halliburton, and BJ Services have reported strong results.
While further decline in commodity prices is within the realm of possibilities, fundamentals for the energy service business remain quite strong in terms of demand and pricing. Given the relatively large recent decline in FSESX, Subscribers pursuing different objectives may consider the following:
The AlphaProfit Sector Portfolio Indicator is rated ‘Buy’. None of the funds carries a Favored Buy rating. The AlphaProfit Sector Portfolio Indicator will be updated next on March 1.
AlphaProfit Investments, LLC
Ideas. Insights. Results.
* As of December 31, 2005 Fidelity Select Energy Service did not include Transocean among its top 10 holdings.
Notes: The AlphaProfit Sector Investors' Newsletter™ is for information purposes only. AlphaProfit Investments, LLC is not soliciting any subscriber to buy or sell any security. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice. Before buying any mutual fund, read its prospectus carefully. AlphaProfit Investments, LLC cannot and does not give any assurance that the present or future model portfolio changes will be profitable. Past performance is not a guarantee for future results. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. AlphaProfit Investments, LLC is not responsible for any errors or omissions. AlphaProfit Investments, LLC neither is affiliated with nor receives any compensation from Fidelity Investments. Please review our Terms and Conditions of Use and Subscriber Agreement which is available on our website at www.alphaprofit.com; they govern your relationship with AlphaProfit Investments, LLC, including, but not by way of limitation, use of this newsletter. No part of the AlphaProfit Information may be reproduced or re-transmitted in any manner without written permission of AlphaProfit Investments, LLC.
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