February 22, 1997

Energy Stocks Ready To Rise

Jill Dutt The Washington Post

Daniel J. Rice, manager of State Street Research’s $160 million Global Resources Fund, was Wall Street’s hottest fund manager last year, racking up an impressive 70-percent total return, which put him at the top of the performance list compiled by Lipper Analytical Services Inc.

His white-hot returns have cooled of late. Share prices dropped on some of his major holdings as other investors got spooked and dumped energy stocks when oil prices started dropping back to $22.50 a barrel. But Rice remains undaunted by what he believes are bright prospects for his chosen sector - small oil and natural-gas companies - which he has followed for more than 17 years.

“Energy stocks had come down about 4 percent” the week before, “and then on Monday (Feb. 10) they dropped another 3 to 4 percent. It was panic, bottom-type selling,” Rice said. “I saw that and stepped in to buy.”

Rice said he bought $40 million of energy stocks that Monday alone, halving his total cash position. The sell-off hurt his near-term performance, wiping out a 9 percent gain for the year. But three similar sell-offs in his stocks last year helped him still return 70 percent.

Rice said he expects the small energy companies at the core of the Global Resources Fund to provide good returns this year, even if oil prices drop as low as $20 a barrel.

“Our projections have always been based on estimates of oil at $20-$21 a barrel,” he said. “With that, these stocks are growing (cash flow) at 20 percent a year and trade at just six times cash flow.”

Larger energy companies tend to trade at multiples of seven to 10 times cash flow, he said, even though their growth rates are closer to just 8 percent.

Rice talks about the companies he likes - Nuevo Energy Co., Atwood Oceanics Inc., Tidewater Inc., Noble Drilling Corp. - with passion and loyalty. That’s why he thinks he’s been able to outperform other growth-stock managers.

“Most growth-fund managers don’t look at this sector, because they think it has underperformed,” Rice said, adding that they do “wander in” when oil prices rise. “I should be able to do better than the touring pros,” he said. “I’ve been fishing religiously in one lake. I know all the secret fishing holes.”

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