The declining oil prices have taken a toll on virtually every oil producer and oilfield service provider in the past year since last July, although a recovery of oil prices is in the works.

Oceaneering International (OII) is no exception. Its stock price has dropped over 30% from $70 to the current $47 range. I love finding fundamentally strong companies like these to trade because the risks have already decreased dramatically from the large stock price drop.

Oceaneering International is an oilfield provider of engineered products and services to the offshore oil and gas industry and especially deep water applications operating in the North Sea, Africa, Brazil, Australia and Asia.

The following is what makes me want to add Oceaneering to my medium term (1 to 2 months) trading portfolio over the coming days. Here I will get straight to the point, as I believe it makes for efficient decision-making.

Please note, I am both a long-term deep value investor as well as a short to medium-term trader who utilizes the combination of both fundamental and technical analysis to form a view of every investment I make. Doing so leads to low risk, superior market beating returns over the long run.

Fundamental Factors;

The Bad

  • Valuation of $45-$50 (approx.) based on adjusted discounted cash flow analysis, so OII is fair value at current prices.
  • Forecasted weak Earnings per Share growth (EPS).
  • Due to the unpredictable nature of oil prices, the range of analysts forecasts is wide.

The Good

  • Earnings per share (EPS) has been good for the past 5 years.
  • Return on Equity (ROE) of greater than 24% (although due to decline to about 16% in 2015) is more than satisfactory and already priced in.
  • Net Debt to Equity (D/E) of less than 20%.
  • Long-term cash flow relative to reported profits is strong.
  • Long term funding surplus.

 

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Technical Factors;

The Bad

  • Clearly broken a key price support level of $48.00.
  • Currently below both the 50 and 200 day moving averages.
  • Seems to follow a confirmed down trend line.

The Good

Conclusion

Ocean Engineering is currently at a fair price and has been out of favour in the past 12 months since their fortunes are heavily reliant on oil price recovery. This will be a short to medium term contrarian long trade.

I will be personally adding Oceaneering International to our medium-term trading portfolio over the coming days once confirmation of buying volume is evident.

 

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