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HistoricalPEGuy (68.05)

Greatest American HERO



February 05, 2007 – Comments (1)

Remember that TV show. "Believe it or not, I'm flyng on air - never thought I could feel so free-e-e". I probably just butchered those lyrics. I had a good friend Chip in college who looked just like that guy. For Halloween one year he actually wore the costume - and proceeded to jump down a flight of stairs while screaming the lyrics (resulted in only a gigantic back bruise and ego - is 17 shots of Jaeger too much?).

But this is about the oil services stock, HERO. I listened to the conference call and was happy to hear a couple of things:

1) The management is non-chalant about the upcoming uncertainty in the sector. Things are finally normal and the down time they are seeing is due to typical cycles during winter months. Over and over they reiterated that this is a typical winter for the industry. Furthermore, they stated that recent gulf weather has prohibited them from contracts - customers were just waiting until the rough gulf weather passed. I live in Houston and its supposed to be wonderful weather for the next two weeks (sorry Northeast and Midwest - but its a huge benefit to living down here!). Based on what I heard, contracts will begin coming in for the liftboat sector of the business.

2) They are focused on international growth. Rigs are being moved out of the gulf to more profitable international areas. They basically stated it was a simple matter of arbitrage - I can make a ton more elsewhere, so its time to put the effort into moving. No matter how you slice it, getting oil and natural gas out of the ground is a profitable thing, especially for international markets that want a piece of the pie.

3) Management is required to own a minimum amount of equity in the company as part of their compensation. This was an added benefit I didn't expect. It was a quick side note, but an important one. I love hearing that management has skin in the game. If you want to get rich as a CEO, CFO, ... you should have to earn it - and what better way then mandating management's pay depends on it. Great for shareholders. (As a side note, check out NWY for women's fashion. A nice growth stock with serious growth potential. Management owns a huge portion of the shares).

So I was very shocked that HERO only gained 3-4% today (up to 6% during the day). Investors are still very skeptical on HERO. I don't see it. Time for more buying and laughing (hopefully) all the way to the bank.

- HPEguy

1 Comments – Post Your Own

#1) On February 22, 2007 at 10:42 PM, CycleFreak7 (< 20) wrote:

Just ran across this blog entry ... I also listened to the earnings call and later read the transcript. Like you, I was most impressed by the requirement of management to own a minimum amount of equity in the company.

I agree completely with what you've written. In fact, my research into HERO led me to buying 500 shares on Jan 29 @ $26.00 in advance of the quarterly report. I was confident the results would exceed expectations.

They did by 10%. The stock was up initially in the morning, but then drifted downward to a rather small gain. HERO then inexplicably drifted downward flirting with, but never quite closing below, $25.

Today, at long last, HERO had a solid day gaining $1.04 to close above $26 for the first time since Feb 8th.

The company is so under-valued and has such solid growth projections, I can't understand how the price stays so low. But I wasn't shaken out and I'm not selling any time soon.

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