Stocks that Float: TANKERS & DRY BULK SHIPPERS

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GM Stuffit. PDS is a monthly dividend paying trust (look at my previous post):

FYI:

Taking the Plunge with Precision Drilling
posted on: November 02, 2007 | about stocks: PDS/ Jake Berzon, Seeking Alpha

Precision Drilling Trst (PDS) is an income Trust that primarily provides oil and gas drilling services in (yikes!) Alberta, Canada.

So, with all the new taxes and royalties Alberta decided to impose on oil and gas producers, rig day rates on decline, low utilization rates, poor grade oil under their feet and extreme difficulty in getting it out, why would anybody in their right mind want to own this security?

The short answer is that things can't get much worse for PDS at this point and the only way to go is up! However, the longer answer is far more interesting. We have already listed the macro conditions weighing down drillers in Western Canada. What makes this company interesting is, of course, its rather unique set of strengths and the much ignored set of positive market forces. Let's go over my list of top 10 of these briefly:

1. High percentage of variable expenses allows to closely align expenses with revenues and make money even if utilization is very low.
2. Emphasis on high performance teams and equipment, deeper drill depths, extreme operating conditions and safety record ensures best customers and day rates.
3. Recent successful entry into the US market diversifies income base. Look for the company to further geographic diversification in as little as 10 months.
4. The recently acquired portable waste water treatment business, does not currently contribute significantly to earnings, but has much opportunity for growth.
5. Historically, the two "winter" quarters (Q4 and Q1) are higher revenue and more profitable for PDS than the "summer" quarters, due in part to traditional ancillary charges for winter equipment.
6. Customers are currently reserving rigs for winter at a rate very similar to last year. These reservations have no contractual commitment, but imply market conditions above expectations.
7. Most income sources are currently Canada based, which means higher income in $US, as our currency sinks further.
8. Increasing oil prices and natural gas prices (which are expected to increase as cold weather kicks in and demand picks up) should drive up drilling activity in Canada.
9. Alberta scaled down original taxation and royalty plans. New law will not impact drilling in the area as much as was originally feared and will hurt larger companies involved in exploration (PDS's customers) the least. Yet PDS shares are still trading at the level they were before the uncertainty was cleared.
10. Analysts are finally starting to see the light, with Andrew Bradford (a highly accurate EPS forecaster for the industry) earlier in the day coming in with an estimate of .63 cents for Q4, $2.67 for 2008 and upgrading Precision Drilling to a buy.

So, do you know any other companies with long term growth potential, which also pay a 9% dividend while trading at both TTM and believable forward PE of less than 7?! After keeping a close watch on this security for over a month, I finally felt that the opportunity was ripe for taking the plunge.

Disclosure: Author has a long position in PDS