A "Strong" Oil Play

In Monday’s edition of the The Goldman Guide we mentioned the interesting axiom that in general, a rise in oil means a rise in the stock market and vice versa, as it’s all about the signal of an improved economy and an increase in demand.

How do we play oil in the small cap space?  There are a bevy of small oil and gas discovery companies that are similar to the bio-tech companies in the space – they are in the development stage and are not profitable yet.  Finding a stock and company that is not pure speculation is like finding oil in your backyard!

For about 6 months we have watched Hercules Offshore, Inc. (NASDAQ – HERO - $7.55) rise steadily from the $6.00 range to today’s level.  We think there is more room to run for this stock.  The company is profitable and has a multitude of customers in the oil and natural gas space.

Hercules is a service provider to oil and natural gas companies providing shallow-water drilling and marine services to exploration companies.  Its services comprise oil and gas exploration and development drilling, well services, platform inspection, maintenance, and decommissioning services in various shallow-water provinces.

The charts remain bullish in the short term and very bullish in EMA and MACD.  Forward earnings estimates put the valuation of HERO under 10, at 9.32. This is a low number regardless of industry.

We like the diverse nature of HERO and think the stock continues to rise to the $9.50 level over the next quarter. 

Have a great day.

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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