Exit out of Halliburton...sort of!

I have exited Halliburton (HAL) position yesterday as it was reaching the lower limit of my valuation; I have sold my position at $55. I had begged HAL intrinsic value between 50-65, see my post here.

However, since there is still more upside to the stock value particularly there is better prospect for its North American business, I have rolled some of my profits to long dated call option, Jan 2010 with $65 exercise price. I have rolled 27% of the profits made on the position into the LEAPS position. Please note that since my write up I have revised my valuation upward based on new financial information from their annual report.

I have bought HAL at $33 because it was undervalued compared to other Oil and Gas service providers, and I thought the discount was illogical. The run up in oil has helped its prospect tremendously so do not be disillusioned in my stock picking abilities.

The option will allow me to participate in the potential run up in their business while I preserve my capital and majority of the profits to deploy into other opportunities as more and more businesses are becoming very attractive. I like HAL for several reasons, and I think it will continue to deliver good numbers:

• It still trades at a discount to its peers, particularly Schlumberger and Baker Hughes on comparative basis
• Natural gas prices has firmed up making its North American business much more attractive. HAL has 60% of their earnings are North American based, which until last year and up to the beginning of winter was mostly mundane and declining. But since natural gas prices took off due to decline in LNG imports and colder winter, drilling activity in NA prospect is looking very good which HAL is better poised to increase its earnings than others.
• International growth, which is occupying more and more percentage of its gross revenue, is on track to deliver 25%+ for the next few years.

The option strategy allows me to leverage a bit my portfolio to enhance its performance, however I limit the use of this strategy to only part of my profits and not my capital.