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  1. Home
  2. / Investing
  3. / Energy

Look Before You Leap Into the Oil Patch

Don't buy oil-service stocks until Baker Hughes bottoms and Brent crude stabilizes.
By JIM CRAMER Nov 01, 2011 | 02:01 PM EDT
Stocks quotes in this article: VLO, MRO, BHI, WFT

Is the long-awaited decline in Brent crude finally happening? Is Brent being pulled down more than West Texas Intermediate is being pulled up? Is there finally some new supply? Or is it a collapse in demand? Or is it a notion that if Italy and Spain collapse, we could be in a radically deflationary world?

All of these could be occurring. It certainly bears watching, and not just because the refiners, Valero Energy (VLO) and Marathon (MRO), may have had their last blowouts, because they have been able to take advantage of the cheaper crude and higher refinery prices and truly make heaps of money.

So many of the new drilling budgets are based on $90 oil, so the level pretty much has to hold if we are going to find a floor in this oil drilling group.

Of course, it's not just the decline in Brent that's got the group in purgatory. It is the once again horrendous performance of Baker Hughes (BHI). I think that there are so many better oil-service plays, but this is the one that gets keyed on because it is the only one right now.

My take?

You can't buy these stocks until you see the whites of their eyes: BHI bottoming first, and then Brent stabilizing. The group has made a lower high, so all of the chartists out there are totally freaking out.

Why bother? Because the numbers are so compelling in terms of permits and new drilling. There are just some bountiful quarters ahead. Just buy anyone but Baker Hughes and Weatherford (WFT), because, like Baker Hughes, Weatherford takes on a lot of business it shouldn't take on. Hence the margin dislocation that no one wants to see.

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At the time of publication, Cramer had no positions in stocks mentioned.

TAGS: Investing | U.S. Equity | Energy

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