Category Archives: HP

Details of the Ideal Transaction

On January 12, 2016, we took a position in Helmerich & Payne (HP) at $47.41.  At the time, HP was coming off of a high of $118.29.

According to Dow Theory, an investor should only expect one half of the previous move.  With this in mind, we charted an upside target of approximately $79.16 as the likely point for selling the stock as outlined in our July 2, 2016 posting.

On January 13, 2017, we sold our holdings in HP at $78.31 for a gain of +74%. For reasons unknown, HP declined from $78.31 to $43.02 by September 1, 2017, a decline of –45%.  An outline of the change from February 3, 2014 to January 12, 2018 is charted below.

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The Rationale

Naturally, this is the most ideal transaction that we could engage in.  Below we will lay out our observations on how we accomplished this task.

First and foremost, Helmerich & Payne is a high quality oil and gas driller that survived the crash that was experienced after the 1970’s.  In our view, if a company can increase their dividend over many years and survive a period that put a lot of competitors out of business, then you’re dealing with a good management team.  What follows are the details that we are looking at.

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Performance Review: Helmerich and Payne

On January 15, 2017, we reviewed Helmerich and Payne (HP) after it achieved our July 2, 2016 upside target of $79.16.  At the time, we reflected on the following thoughts:

“The only question now is the selling of the stock.”

For all intents and purposes, HP should have been considered for selling the principal or the entire position.  Since the January 15, 2017 posting the stock has had the following price action:

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Our fear then was, “Can we handle see[ing] the stock fall back to where we bought it?”  This thought only comes to mind when or if the stock price substantially exceeds the norm for an individual investment.  At the time, HP had annualized gains of more than +60%.

For now, it is back to the drawing board for HP.  We’ll have to re-examine the attributes for the stock to determine if investment is warranted or not.

Cimarex (XEC) at a New Low

Today, Cimarex (XEC) hit a new 1 and 2-year low as the energy sector continues to fall apart.  We like Cimarex (XEC) because it is a spin-off from Helmerich & Payne (HP) which has had a tremendous dividend increasing history.  Additionally, we have been very fortunate in being able to call most of the peaks and troughs in the price of Helmerich & Payne found at the links below:

Cimarex appears to be willing to continue the conservative management style that got Helmerich & Payne through hard times in the oil drilling industry during the 1980’s and 1990’s.  Therefore, we believe that Cimarex should be on your watch list as well.

Below is the Altimeter for Cimarex since being spun off from Helmerich & Payne:

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note: dividend data prior to 2006 is hypothetical based on $0.04 quarterly payment

We believe that whenever the Altimeter is trading at or above 1032 the stock should be sold.  Additionally, whenever Cimarex’s Altimeter is trading at 600 or below, the stock should be considered for acquisition.  Below is the performance of buy and sell indications based on the Altimeter levels just mentioned:

Date Price Altimeter buy/sell % change
6/26/2003 23.96 599 buy 72.29%
3/3/2005 41.28 1032 sell -47.25%
10/10/2008 32.66 544 buy 90.02%
3/11/2010 62.06 1034 sell -42.18%
8/22/2011 59.81 598 buy ??????????

Our expectation is that Cimarex may decline as low as, and possibly lower, than the 2009 level on the Altimeter.  That would equal a price of $31.80, or -30% from the current price.  A purchase of the stock at this time may be warranted, based on the Altimeter.  However, be prepared to buy more at lower prices.