Headlines (Scroll down for complete stories):
1. OPEC: Crude Demand Falling
2. Barron's: J&J Great Pick for Slowing Economy
3. Analyst: Oil Services to See Slowdown
4. N.Y. Fed Manufacturing Index Rises in October
1. OPEC: Crude Demand Falling
Despite falling oil prices, the Organization of Petroleum Exporting Countries
says that demand for its crude will be lower than previously expected, citing
economic uncertainties and high inventories.
OPEC now says that fourth-quarter demand for OPEC crude, which is known as the
call on OPEC, will average 28.69 million barrels per day, down from its previous
forecast of 28.86 million bpd, according to its October report.
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"Uncertainties about global economic prospects particularly in the USA, slowing
demand growth, rebounding non-OPEC supply and high stock levels have triggered a
strong bearish sentiment in the market," said the report.
"This has led to some concern that the downward momentum might persist, causing
prices to overshoot and fall below levels justified by fundamentals," it added.
Oil prices this morning dipped back down to $58.35 a barrel, down 25.6 percent
from a high of $78.40 per barrel in mid-July. OPEC President Edmund Daukoru
labeled the price drop as "catastrophic," according to Reuters. A sustained 20
percent drop is considered a bear market.
The announcement comes as OPEC prepares to meet on Thursday to discuss a cut in
production. The group has already agreed on a cut of 1 million bpd, but needs to
discuss which countries will lose the revenue that comes with a price cut.
OPEC also cut its 2007 forecast for crude demand. The group says it expects
demand to fall to 28.08 million bpd from its previous forecast of 28.72 million
bpd. OPEC says non-OPEC crude supply will rise by 1.8 million bpd to average 53
million bpd.
OPEC maintained its 2007 outlook for demand growth, expecting the world to add
1.3 million more bpd to consumption. It cut the 2006 forecast by 100,000 bpd to
1 million bpd.
OPEC says the drop in demand will mainly come from Organization for Economic
Cooperation and Development (OECD) countries or the developed world because of
slowing economies whereas the developing countries, such as China and India,
will continue to increase consumption, reports CNN Money.
"China and the Middle East will lead the world oil demand growth with 0.42 mb/d
and 0.30 mb/d respectively," OPEC's report said.
2. Barron's: J&J Great Pick for Slowing Economy
Healthcare behemoth Johnson & Johnson is a great pick for riding out a slowing
economy, says Barron's.
The article cites the New Brunswick, N.J.-based company's diversification in
three separate sectors of the healthcare industry: prescription drugs, devices
and diagnostics, and consumer healthcare.
The company owns well-known brands such as Band-Aids, Tylenol and will soon add
Lubriderm and Listerine thanks to an acquisition of Pfizer's consumer healthcare
unit.
Matthew D. McCormick, portfolio manager at Bahl & Gaynor, points out to Barrons
that even in the event of a recession consumers will need to buy the "bare
necessities."
McCormick calls Johnson & Johnson, "a diversified play on almost every
healthcare product out there."
Barron's also points out that J&J is looking expected to deliver solid earnings
for an established company. The company is expected to earn $10.9 billion, or
$3.69 a share this year, a 6 percent gain from last year's $3.49 a share.
According to Barron's, analysts are looking for earnings of $4.01 in 2007 and
$4.28 in 2008.
The company is also trading at a respectable price to earnings ratio. The
company trades at an historic P/E of 19.4 times forward earnings and today is
selling at just 16 times future earnings, says Barron's. It also has a lower P/E
than many of its competitors. Its current price to cash flow ratio of 15 is also
lower than its historic average of 18.
"When you see a company with a pretty good franchise in three areas trading at
low historic values … it's opportunistic to buy it," George Foley, manager of
large-cap and core value portfolios at Glenmede, tells Barron's. Glenmede holds
stock in J&J.
Based on these valuations, J&J's stock could be worth $77 a share, says
Citigroup analyst Matthew Dodds. That would be a 19 percent gain over its
current share price of $64.80.
3. Analyst: Oil Services to See Slowdown
Investors in the offshore oilfield services and drilling industry should brace
for a temporary slowdown, a Morgan Keegan analyst said Monday in downgrading a
host of contractor stocks.
"We believe the energy cycle is taking a pause, which will ultimately lead to
slowing North American drilling activity in 2007," due in part to a glut of
natural gas inventory, analyst J. Michael Drickamer said in a note to clients.
He suggests the "pause" will be temporary and isn't evidence of a cyclical
downturn. Given the flight of jackup rigs from the Gulf of Mexico to more
lucrative spots abroad, and lower natural gas prices, the supply-demand ratio
should come back into balance quickly, Drickamer says.
The analyst lowered his ratings to "Market Perform" from "Outperform," or "Buy,"
on Bronco Drilling Co., Patterson-UTI Energy Inc., Complete Production Services
Inc., Basic Energy Services Inc., Todco and Natural Gas Services Group Inc.
Drickamer also reduced earnings estimates on all but Todco and Natural Gas
Services.
He reiterated "Outperform" ratings on companies with international exposure and
long-term contracts, including Ensco International Inc., Rowan Cos., Hercules
Offshore Inc., Allis-Chalmers Energy Inc., Helmerich & Payne Inc. and Pioneer
Drilling Co.
The lone standout -- Noble Corp. -- was upgraded to "Outperform" from "Market
Perform." The company's stock rose $1.04 to $64.63 in midday trading on the New
York Stock Exchange.
Separately, Bank of America analyst Douglas L. Becker reduced 2006 and 2007
earnings estimates on offshore drilling contractors, saying he expects offshore
asset shares to trade lower during earnings season. Many companies in the sector
are scheduled to report quarterly results over the next two weeks.
© 2006 Associated Press.
4. N.Y. Fed Manufacturing Index Rises in October
Manufacturing activity in New York State factories improved in October,
rising to its highest level in four months, the New York Federal Reserve said on
Monday, defying analyst expectations,.
The N.Y. Fed's "Empire State" index general factory conditions index increased
to 22.92 in October from 13.84 in September, boosted by increases in shipments
and hiring, and a drop in manufacturing costs.
The median forecast of economists polled by Reuters on the New York Fed index
was 11.50.
The report's shipment gauge rose to 22.54 in October from 20.56 in September,
while the prices paid component slipped to 30.83, its lowest level in more than
a year, from 41.00 in September, the New York Fed said.
New orders, however, fell for a second straight month to 11.75 in October from
13.96 in September.
The survey's index on the number of employees rose 7 points to 19.4, but the
average workweek index fell 8 points to 14.4.
Moreover, the overall business outlook remained positive, but a number of these
future readings fell to "relatively low levels, a sign that the level of
optimism about conditions six months ahead has declined," the New York Fed said
in the report.
© Reuters 2006.
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