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Lufkin Industries (LUFK): Still pumping?
Rating: 3.00 (1 votes)
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LUFK was a screaming buy when I first purchased it on Marketocracy: 15APR03 at a price of $19.32. It's been in my energy sector fund ever since, at varying levels of weighting. I've owned it off and on IRL, too. It was during another of those explosive periods of price appreciation that I wrote it up for Marketocracy as a potential Stock Alert pick. Sadly, by the time that alert was published in late 2005, the stock went rangebound at around $60, where it stayed until this most recent run-up. LUFK is a difficult stock to decide 'pick' or 'pan'. I do think they're in a great potential business, especially given the tremendous resurgence in drilling in West Texas' Permian Basin area. My dad delivers mail to a USPS rural route across a vast area around Odessa, Texas, and has told me every time we talk that he's never seen this level of drilling activity even back in the early 80s. Each of those drilled oil wells will need a pumpjack on the surface, and that's one of the main products in Lufkin's lineup. They also manufacture reduction gears, which basically take a rapidly spinning shaft and output a slower speed/higher torque shaft. Another product line includes various trailers. I once saw a very happy sight for a Lufkin shareholder: a Lufkin trailer heading west on I-20 (towards the Permian Basin area) with a Lufkin pumpjack on the bed! That's all well and good, though... but investing is not about what's past, it's about what's ahead. Analysts estimates call for LUFK to earn $6.00/share next year, and forecast an earnings growth rate of 10.25% over the next five years. That computes to a forward PEG of about 1.25 to 1.3 with a price-per-share in the $78-80 range. That's too rich for me. I think there are better opportunities in the oilfield services arena. If you see LUFK pull back to $55-60, and you're patient, then maybe it'd be worth a small portion of your energy sector allocation... but at nearly $80, it's got all the good priced in.
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