Trican Well Service Ltd. at a reasonable entry point

Sep 9th, 2011 – 1 Comment

With support at these levels and continued expansion in the development of shale energy deposits this looks like a reasonable entry point for a growth stock.


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Hi Lou

Could we have your thoughts on Trican Well Service. It seems to be suffering, not sure why.

Please and thanks.

Irene

 

Hi Irene,

Trican Well Service Ltd. (TCW TSX) has benefited from the growth in the demand for high pressure fracturing services in the oil and gas industry. The company earns 77.1% of its revenue from fracturing making it a proxy for growth in the development of shale oil and gas deposits.

 However what has been an accepted practice for decades in Western Canada is causing quite a stir in other parts of the country and in the United States. Quebec, New York, and Pennsylvania have all been going through reviews to satisfy themselves that  fracturing will not contaminate the local water supply.

You also have to consider the effects of the extreme drought that has gripped Texas and Oklahoma where TCW gets twenty five percent of its U.S. business. Fracturing requires millions of gallons of water for each well. When water is in short supply you can bet that there will be conflicts as to who will be getting it. The company has been working around the problem but you can be sure that the threat of disruption has been baked into the price of the stock.

Despite the concerns about the sanctity of the water supply the drought in the U.S. Southwest TCW has been growing revenue and profits at a robust rate. The company has a 2011 capital expenditure budget of $616 million and has forecast a 2012 capital expenditure budget of $678 million. All of the investments are in anticipation of continued growth in demand and in the revenue that they earn from each well that they handle.

A review of  the charts will indicate if there were signals that could have alerted investors of a shift in momentum.

The three year chart illustrates a stock that was pretty much range bound throughout 2011 with support at $20.00 and resistance at $23.50. It did spike up to $26.50 in July but the advance was not sustained.

 

 

 

 

 

The six month chart indicates that the MACD signalled the advance that started in late June  at $21.00 and ran out of steam at $26.50 a month later. The advance was short, sweet, and generated a 26% return.

The MACD and RSI signalled that the move was coming to an end in late July which led to the retreat back to support at $20.00. At this point in time neither of the indicators are suggesting a shift to the upside just yet.With support at these levels and  continued expansion in the development of shale energy deposits this looks like a reasonable entry point for a growth stock.

 

Make it a profitable day and happy capitalism!

 

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