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Let the earnings season begin !

Last week earnings season started with three important earnings - AA, INTC and JPM. All three of them had decent bottomline (INTC surprised even on topline). But investors wanted a reason to sell (don't blame them since markets were becoming dizzy after 65%+ rise in 10 months). Investors focused on revenue growth. With Q-to-Q comparisons becoming difficult starting from Q2, many folks believe that this may be peak earnings for many companies. Stocks of all three companies fell after the earnings were announced.

So what can we expect as earnings season gathers steam ? I would predict that we will see last week's pattern repeating for majority of companies - most of them would surprise on upside but stocks will still fall on next day. However overall market should hold pretty well with DOW hovering between 10500 and 11000 and S&P between 1100 to 1150.

Let's take a look at couple of investment ideas:

Company: Hercules Offshore, Inc
Symbol: HERO
Buy price: $5 to $5.15
Target price in 12 months: $7.50
Background: Hercules Offshore, Inc. (Hercules Offshore) provides shallow-water drilling and marine services to the oil and natural gas exploration and production industry in the United States, Gulf of Mexico and internationally. The Company provides these services to integrated energy companies, independent oil and natural gas operators and national oil companies. The Company operates in six business segments: Domestic Offshore, International Offshore, Inland, Domestic Liftboats, International Liftboats and Delta Towing.

Selection reasons:
  • Energy market has come out of recession and getting ready for growth With oil hovering around $80, oil-drilling activity should pick up
  • There was a major find in Gulf of Mexico by MMR and EXXI - this should create interest in more drilling activity in this area. Hero is major player in supplying drilling rigs in this area and should benefit
  • Have addressed debt issues so chances of survival is very high
  • News about contracting various "cold-stacked" rigs should give positive momentum to stock
  • Has gone up by less than 10% in last one year - so risk-reward ratio is very good
Have a good MLK weekend and good luck investing !

/Shyam

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