Pick of the Week: Oil Services Rise With Offshore Drilling Hopes – GLBL

High gas prices continue to disturb consumers.It’s obvious they would be important during this campaign season. An inflationary environment and a disgruntled electorate are helping make energy a core issue in the Presidential race. Sensing voters’ discontent, presumptive Republican nominee John McCain started pushing offshore drilling to raise domestic crude production. His new-found position has been met with praise from several corners.

The significance of this development is two-fold. For one, it highlights a dramatic shift in attitudes about neglecting domestic energy sources. Americans are becoming more open to exploring additional sources for crude — maybe not in Alaska’s ANWR yet — but at least on the coast. The mood appears to be shifting away from pie-in-the-sky energy policy as families feel the uncomfortable effects of $90 fill-ups and $250 grocery bills. People understand that increasing domestic crude production will be good for a thinning wallet. And they’re right.

Second, the political climate is changing to accommodate taxpayers’ discontent. Florida’s Governor Crist is endorsing McCain’s plan. His state would benefit from the boost — not to mention relieving Floridians of additional fiscal strain. Even President Bush is asking Congress to start such exploratory drilling. While cries from struggling families grow louder, Democrats will be forced into a more conciliatory stance. As yet, it has not happened. But if polls swing against them when gas spikes above $4, they will likely be more amenable to these suggestions. This development could help your portfolio immensely.

This is just one of the reasons we like an energy services company that is well-positioned to benefit from business on the U.S. continental shelf. Global Industries, Ltd (GLBL) is a world-wide leader in helping offshore oil producers move crude from the ground to refineries. Founded in 1973, they’ve grown from a fledgling diving company to a global leader in energy services. Stretching from Carlyss, Louisiana to Mumbai, India, GLBL is a strong presence in this oil services market.

GLBL specializes in offshore construction and services. They cut their teeth in the Gulf of Mexico. As they grew, their fleet of construction vessels and invaluable experience laying thousands of miles of shallow-water pipes helped secure international projects in the Middle East, Brazil, Mexico, Cameroon, Nigeria, Malaysia, Indonesia, Brunei, and the Congo. Global Industries has proved its experience in offshore construction. As they have grown their global customer base, they are still poised to capitalize on the shifting political winds in the United States. If drilling opens up on the Eastern seaboard, GLBL will get more business than they can handle. This would be great for the stock.

Global Industries is a small company. Their market cap is $2.1 billion, compared to Halliburton ($43.9 B) and Schlumberger ($123.4 B), demonstrating the enormous potential for a company like GLBL. Its low 9.96 forward P/E is also very attractive. (The industry average price-to-earnings ratio is 17.50.) Recently, a Raymond James analyst upgraded GLBL from “market perform” to “outperform” with a price target of $22. We agree with the analyst. However, we except the price to jump beyond $22 if offshore drilling expands in the U.S.

Keep in mind, GLBL is a volatile small-cap stock. Investing in GLBL is not for the faint at heart. However, we like the chart action, the relatively low entry price, and the current groundswell behind U.S. energy services companies. If these trends continue to develop, you should expect a big payday for GLBL.

All the best.