Generally, when the markets are having an ugly day, I prefer not to look at the price of stocks I already own. That just gets depressing. Yes, I realize I just recommended RIM yesterday and it’s already down more than 6% on the day, but one trading session does not an investment make. So, when the markets pull back, I focus on stocks which I’m considering buying. I congratulate myself on my decision to hold off with the purchase and then decide whether it’s time to pull the trigger at these lower levels.


Precision Drilling Trust is down about 15% on the day as I’m writing this. The whole energy sector has been crushed today and the drilling companies are no different. The energy trusts have been hit especially hard. So why am I excited about this company’s long term prospects? Well, it hit a high of more than $28 just one year ago. Obviously, at this time oil was cruising toward $150 and natural gas was also performing very well. Precision hit a low of $2 back in early March and had posted a reasonable recovery since, before today’s destruction.

Right now, I’m a long term bull on natural gas. Historically, gas trades at about 10-15% of the price of a barrel of crude. Right now, it’s trading at about 6%. Now the price of crude might pull back some more, but I’m pretty sure it’s not going back to $35 (which would get that ratio back near the average). People smarter than I say that natural gas is a strong seasonal play in the third quarter; I’m usually not a believer in seasonal plays, but this year I have confidence in natural gas rising to between $6-8 by October. Precision Drilling is an excellent way to play this theory because it hasn’t had as much of a run up as other drilling companies and is a moderately-levered play on the underlying commodity. Precision trades with a high correlation to energy prices; if natural gas were to double in price, this trust should hit at least $10.

One final note on PDS regarding the distribution – don’t worry about the lack of one – at least in the short run. Precision Drilling will come back with the price of natural gas and the dividend will follow. Buy this stock sooner rather than later, hold it for a while without worrying too much about daily price changes, and I am confident that you will be handsomely rewarded in the long run.

The Stock Guy’s Official Ranking: 7 out of 10