A.I.M. Users Bulletin Board

[SFSecurity]

Hi Orcroft, Jamil, and the rest of the gang; I want to posit a slightly different view of when to enter and what metrics one might consider in deciding when is a good time.

In looking at S&P 500 historically there a a couple of things that are not obvious but are often not considered, the primary one is the effect of inflation on the market price. Viewing inflation adjusted S&P 500 at http://www.multpl.com/s-p-500-price/ it shows that there is a general uptrend in the price of the average. Combine this with the cyclical nature of our economic system and one might consider using the 52 week low, or very near it, as an entry point. Look at the history of SDRL. The low point in its history is in November 2008 at $5.45. If you use the 50 year inflation rate for my area at 3.77%/year (about 1.5% over current) the price this coming November would be ~$7, about 40% of the current price.

Now look at why it is at the price it is, a crash in the price of oil. Is it likely that oil prices will go up? I'd bet on it. It may take a while, but AIMers are known for their patience so that should be not be any great barrier to buying and holding, of course buying and selling as the stock gyrates due to market volatility, for the longer haul. Now, what other metrics should be considered? I'd say the position of the company to weather the current down draft and resume its raise in stock price is one, another is the current P/E versus historical and market historical, and another, much harder to evaluate, is the coming increase in regulation that is quite likely given a variety of toxic spills that have happened recently. This last one is a gamble as we do not really know what the company is prepared for in this area. Are they forgetting to look to and solve future problems for their products or they are stuffily holding onto their buggy whip technology?

Now look at the other metrics that might make it a good AIM stock. Beta of 1.39, a daily volume of ~5mm shares a day which would likely prevent us from being stranded with a stock with no value, unless, of course, they have to go into bankruptcy, and a tasty dividend, although not likely to be as much as the last few; however, not to be ignored.

So, do we use metrics like MACD, which always trail events, the AIM buy/sell signals which also trail events or do we combine them with other measures? I think looking at the bigger picture in addition to charts is the better choice.

At the current market price of ~$12 it is about 30% above its market 52 week low (still above its inflation adjusted historical low) which reduces the potential upside (Yahoo projects about $20) considerably and the ability to sell some of your holdings at a nice profit.

What are the risks with having gotten in just after it hit the 52 week low? It might go lower still and/or the company could be in dire straits with contract cancellations and/or no new contracts. This is a real possibility as both BP and Chevron are shutting down underwater exploration for the time being as the cost of production is too high.

So, what it really boils down to, it seems to me, is what the value is of the company and whether it is under priced but robust, the same metrics Warren Buffet uses. Is he buying any SDRL? I'd love to know.

In any case, I think inflation adjusted prices are a good metric to use as well as any other you might use.

Best,

Allen