(B)(N) OIS Oil States International Incorporated

Drama. Oil States International is an oil & gas drilling and production service company with headquarters in Houston, Texas, and operations worldwide. It’s the stuff of blockbuster movies, heros, and legends, but it was brought to our attention by Mr. David Einhorn of Greenlight Capital Management (Reuters, May 8, 2013, Einhorn’s advice to investors: don’t take my advice) and after considering his advice, with our own research, we agree (please see Exhibit 1 below).

Indeed, Oil States probably is a “high-quality business that markets did not appreciate”, and we could take a long position, we suppose, and wait, as Mr. Einhorn suggests, but the stock price is only up +33% since December which puts it in the same class as the Campbell Soup Company which is also up +33% since December and Number 17 on our recently re-visited list of December and before “likeables” (B)(N) in the S&P 500 companies; all 387 of these companies have market capitalizations in excess of $1 billion, and over 150 of them have market capitalizations in excess of $20 billion; and 325 of them pay dividends as well (please see our recent Post, Proactive Risk Management For Everybody & The One Rule, May 2013). Why would we, or anyone, just focus on only one of them, as the “idée du jour”, so to speak, when we could be running whole portfolios of such stocks and “playing every hand”, in advance?

But, evidently, lots of investors did take his advice, and the stock is up +25% since last week on trading volumes (7 million shares) that are four to five times the normal daily volumes, and one can’t explain the price jump on the basis of the fundamentals (Globe Newswire, April 24, 2013, Oil States Announces First Quarter Earnings).

The current Risk Price (SF) is $93 and the stock price is $98 and might stay there – we don’t know. However, our estimate of the quarterly downside in the stock price due to the demonstrated volatility is minus ($9) per share, which would put the stop/loss at $90 and a loss of 10% for no reason that anyone could understand.

If we buy the stock, on the basis of “plausibility” and “opportunity” or “adventure”, we could also “collar” the price by buying the September put at $95 for $6.10 per share and partially offset the cost of that by selling or shorting the call at $105 for $5.50, so that for a cost of $98 for the stock and $0.60 per share for the collar ($6.10 less $5.50), we could see how this plays out between $95 and $105 per share for the next few months.

But there are no dividends, either, and we’re dependent on other investors discovering more “hidden value” in service sites for tar pits, so to speak, and wanting to buy our stock at a higher price. With Campbell’s Soup, we can expect to eat every day (please see our Post, (B)(N) HNZ H.J. Heinz Company, February 2013).

Exhibit 1: (B)(N) OIS Oil States International Incorporated – Risk Price Charts

(B)(N) OIS Oil States International Incorporated

Oil States International Incorporated, through its subsidiaries, is a provider of specialty products and services to oil and gas drilling and production companies throughout the world.

(Please Click on the Chart to make it larger if required.)

From the Company: Oil States International Incorporated is a diversified oilfield services company and a leading integrated provider of remote site accommodations with prominent market positions in the Canadian oil sands and the Australian natural resource regions. Oil States is also a leading manufacturer of products for deep water production facilities and sub-sea pipelines as well as a provider of completion services, oil country tubular goods distribution and land drilling services to the oil and gas industry. The company was founded in 1995 and is based in Houston, Texas.

The Price of Risk

The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2009) and “likeability” is determined by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation – and the properties of portfolios of such stocks.

Stock prices that are less than the price of risk can be said to be “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”; on the other hand, investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information.

Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more information on the theory.

To see what else “risk averse” investing can do for us, please see our recent Posts, The Wall Street Put, April 2013, and earlier Posts such as The Dow Transports, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013, and for a more colorful description of investment risk and the application of the “price of risk” to mergers & acquisitions, please see our Post, Bystanders & Collateral Damage, April 2013.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.