Wednesday, October 3, 2007

CNOOC takes a dive

How infatuated am I with CNOOC Ltd. (CEO)? Well, there are only two stocks that I have mentioned more: Apple and Nintendo. But, again, there's a difference. I own shares of AAPL and NTDOY.PK. I've yet to buy a share of CEO.

Hypocrite. That's what you call someone who won't buy one of his favorite stocks in the world. At 92. At 111. When CEO was trading below its 10- and 50-day moving averages, I didn't have much dry powder to scoop up a few shares. Fast-forward a month or two, and I can accurately say that being out of the stock made no sense, considering China's a) industrial growth (11.9% for Q2), and b) insatiable thirst for oil.

That's why today's fall in CEO's price is compelling. Down 6.6% to 157, it's not cheap, but it is trading at a discount. CEO hit an all-time high of 171 two days ago as oil prices hovered above $80 per barrel. But the kicker with CEO is that even on days when the price of crude dropped, the stock would sometimes rise. Demand in China is monstrous, and CNOOC is state-owned. Between CEO and BIDU, I don't know of two other stocks that have so much protection.

So, is CEO a buy at 157? The stock is trading below its 10-day SMA (161) and EMA (159). The 50-day SMA is 126, and if there's a floor to be met, it could be in the 135 area. A big gap to fill after two weeks of an insane run. I could argue that CEO is a buy here, but only a crazy person goes in big.

Pupule says: Buy small, wait for another fall. Though I think this stock doubles or triples in a relative blink of the eye, price rules. Patience will be rewarded.

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