Parker Drilling (PKD – NYSE)

Dear Bottarelli Research Member,

As you probably noticed, our last three small-cap picks are delivering some really dynamite returns. For example, JA Solar Holdings (JASO – NASDAQ), which we entered for $23.54 on June 11^th has already increased 20.01%.

WorldWater & Power (WWAT.OB), which we entered for $0.89 on June 4^th has moved up as much as 43.82%, and Input/Output (IO – NYSE), which we entered on May 29^th for $15.50 has jumped 11.61%.

With returns like this, you can really see that good things are starting to happen with our small-cap picks, so continue to hold JASO, WWAT, and IO for further gains. Not to be outdone, my inner circle also alerted me to a positive development in our little zinc play Metalline Mining (MMG – AMEX).

I’m being told that the California Public Employees Retirement System (the biggest U.S. pension fund!) has started buying shares of MMG. This represents the first time that this fund has ever taken a stake in commodities – and folks this is a huge development for MMG. I want to be certain that you’re along for the ride. As the “big boys” (pension funds) begin to realize that these under-the-radar commodity stocks offer tremendous exposure to the coming surge in base metals, we’ll be perfectly positioned to capitalize on the tremendous upside returns.

If you have yet to enter a position in MMG, I’d recommend adding some to your small-cap portfolio now, because you’re certainly not late to the party. Chart-wise, if that’s not a bull flag, then my name is not Mark. Translation: the stock is going higher. We originally entered Metalline Mining on May 16^th for $3.89, and the shares trade for these same levels today. You can still enter the stock for our exact entry price, so please take advantage.

Another big mover this week came thanks to our Venezuela gold play Crystallex International (KRY – AMEX).On Thursday, KRY received the necessary permits to move forward on their gold project – which is great news for shareholders like you and me. This could be the primary trigger that pushes KRY onward and upward, so maintain your KRY position for more gains.

I’ve also received some questions about Big Cat Energy (BCTE.OB) and Yellowcake Mining (YCKM.OB). Both stocks have come down recently, but I urge you to stick with them. The lack of news flow in each stock has resulted in each stock drifting lower – but that’ll soon change.

Looking at YCKM, the drills have not yet started, so insiders could be selling some shares to raise cash for their upcoming drill campaign. Keep in mind that Strathmore Minerals is their JV partner and the overlays on the seismic studies have shown uranium in the ground. All it’ll take is one drill reading that shows positive results and the stock price will blast off. It’s that simple.Based on the huge up-move that we witnessed on Thursday (which was a 44% up-swing in one day!), I have to think we’ve hit a near term bottom. Be on alert for YCKM to continue moving higher.

I’ve also been in touch with the folks at BCTE, and I’m pleased to report that their ARID tool is operating successfully with Baker Energy & Williams Energy. They’re also in discussions with several other companies, but they’re waiting on permits to clear before progressing any further (permits are required prior to putting a tool in the well bore). Once they get the necessary permits, things are going to start moving – and quickly. Right now BCTE is in that “quiet time” which has caused the stock price to soften up, but with no debt and extensive expansion plans, I think this could be a great place to nibble away by adding to your position. In the end, I think BCTE could be a 5-10 bagger.

The other big news this week was more talk about oil shortages – as possible OPEC cutbacks could push crude prices higher as we head into the peak summer driving season. News like this makes me especially excited about this week’s new pick, because the company I’ll be sharing with you today is an under-the-radar oil and gas driller who’s quietly been increasing their profits at a remarkable clip. Last quarter they increased their net income 162%, and there are no signs of this incredible growth slowing down.

This company also rents the tools necessary for drilling and production through a subsidiary called Quail tools. They just opened a new facility in Texas, and that side of the business model is doing very well since gas and oil drilling has become front stage throughout the entire world. Every emerging country knows that they must survive on oil/gas production, and this company offers the unique combination of both “picks and axes” and drill rigs to support worldwide oil exploration. In fact, they just completed work on the deepest well every drilled, and as day rates increase for rigs around the globe, I firmly believe this company has everything you could possibly want in a driller.

The company is Parker Drilling (PKD – NYSE) and I think you’ll be well rewarded for taking a position now. Let’s buy it here under $12.20 and let them do what they do best: deliver profits! Have a great weekend.

Sincerely,

Diamond Offshore Drilling (DO – NYSE) Gained 1,000% Since 1993. Investing in Parker Drilling Today is Like Investing in Diamond Offshore 14 Years Ago.

Founded in 1934 and headquartered in Houston, Parker Drilling offers shareholders a great mix of contract drilling services and supplementary oil operation services.

The company operates a total of 21 barge rigs and 24 land rigs – and they also offer rental tools to worldwide oil and gas companies that include drill pipes, drill collars, high- and low-pressure blowout preventers, choke manifolds, cement mills, and casing scrapers for land and offshore oil and drilling.

This unique combination of rigs and rental tools positions PKD for fantastic growth over the next 2-3 years, and in just a moment I’ll get into the specific investment opportunity offered by Parker Drilling (PKD – NYSE).

But first, it’s essential that we study a chart of the market’s top oil service companies to get an idea of just how strong this business segment really is. And that involves a look at the Oil Service HOLDR (OIH – AMEX).

As you can see from the chart, OIH is breaking new all-time highs – and what I find interesting is that this collection of oil service stocks is hitting these historically high levels while crude oil is still well off its highs.

So here’s the question: What does it mean when oil service stocks are hitting all-time highs while crude oil prices are well off their all-time high levels?

Well, it tells you that the oil service sector has extremely strong headwinds behind it – especially if oil prices continue to move higher as the summer driving season begins.

Furthermore, if you see events such as an oil supply disruption (or a hurricane forming off the Gulf of Mexico), oil prices could blast dramatically higher, and this price shock will inevitably be followed by subsequent oil stock increases across the board.

So without question, oil service is a very strong sector to be exposed to right now, and PKD offers you that rare and unique “sweet spot” of a small oil company on the verge of a tremendous upside breakout. Case in point, consider this: Within the OIH index, three of the top components and their market capitalizations are as follows…

Diamond Offshore (DO – NYSE):	Market Cap $13 Billion
Transocean (RIG – NYSE):	Market Cap $28 Billion
Halliburton (HAL – NYSE):	Market Cap $32 Billion

Over the last two years, RIG and DO have each gained 80%. HAL is not far behind, gaining 60%. And if you pull up a data range going back to 1993, you’ll see the DO has gained 1,000%, RIG has gained 800%, and HAL has gained 300%. Quite impressive.

BUT HERE’S THE THING: With a paltry market cap of just $1.28 billion, Parker Drilling (PKD – NYSE) is like buying DO and RIG in the very early stages of their growth cycles. In other words, buying PKD today is like buying DO back in 1993, putting yourself in a tremendous position for an explosive small-cap oil winner.

You see, although PKD is in the powerful oil and gas exploration sector, not many investors know about them simply because PKD has yet to be included in any oil service index membership. That’s why buying PKD today offers such tremendous upside potential. Thanks to two powerful news events that PKD issued on May 8^th of this year, PKD will begin receiving a lot of investor interest — and soon.

The first big piece of news on May 8^th came out at 1:40 Eastern Time. It was reported that an oil well project called Z-11 (which extends seven miles under the sea floor) just set the world record for drilling well depth.

A Russian subsidiary of Exxon Mobil (XOM – NYSE) drilled the well – which took 61 days to drill and reached its target depth 15 days ahead of schedule. Now, the important aspect of this news release was that this hole was drilled from the world’s largest land rig called the Yastreb drilling rig (pictured below), which was designed, built and operated by – you guessed it — Parker Drilling.

According to David Mannon, chief operating officer of Parker Drilling, “This new world record for extended-reach drilling builds on our 72-year history of technological leadership and record setting. Achieving success in extreme-reach drilling requires the high-specification equipment, reliable logistic support services and highly experienced people that Parker delivers.”

This is quite an impressive milestone for PKD, and it establishes them as one of the top deep drillers in the world. In fact, the success brought about from this achievement could spark further drilling contracts for PKD – which only adds to their increasing popularity among the powerful community of cash-rich oil majors. And if that weren’t enough, later that same day (at 4:39 ET, to be exact) PKD released their Q1 earnings report – and the numbers were blockbuster.

Thanks to higher U.S. drilling revenues, PKD announced that their first-quarter net income more than doubled – coming in at $30 million ($0.27 per share) from $11.5 million ($0.11 per share) in the prior-year quarter. Thomson Financial expected a profit of $0.17 per share, which means that PKD beat estimates by a full $0.10.

In and of itself, this quarter-over-quarter increase should continue to push PKD’s stock price higher, but that’s not all. There are currently three additional upside triggers that could move the stock valuation higher – and they are as follows:

Upside Catalyst #1: Low P/E Compared to Sector Peers

When you look at the entire oil service sector, the collective industry group has a trailing three month P/E ratio of 16.14. Parker Drilling, on the other hand, currently carries a trailing three month P/E ratio of 12.44. That means the stock’s price-to-earnings ratio could increase 30% just to trade at the same level as other stocks within its peer group, giving PKD a lot of room to run.

Upside Catalyst #2: Continual Rig Day-Rate Increases

When you look at a 5-year chart of intermediate and deep-water day rates, you’ll see the unmistakable upside trend that has no signs of slowing down. In the first quarter of 2003, for example, an intermediate drill cost $13,000 per day and a deep water drill cost $17,700 per day. Over the following four years, prices have increased on a very consistent rate. In fact, the price chart closely resembles a 45-degree angle – going up. Today, for example, an intermediate drill costs $38,500 per day and a deep water drill costs $52,900 per day. That’s a respective increase of 197% and 199%, and this cost up-trend will only continue to increase – making a strong revenue growth argument for PKD’s 21 base rigs and 24 land rigs.

Upside Catalyst #3: Growth of Quail Tool Segment

In addition to their drill operations, what really sets PKD apart is the growth of their Quail Tool segment. This business arm is a specialized oil tool rental company that offers a full line of drill pipes, drill collars, casing scrapers, and cement mills. This rental segment experienced a 29% increase in revenues 2006 vs. 2005 and a 33% increase in EBITDA margins 2006 vs. 2005. Combine that growth with their current drill rig operations (of which PKD has 9 new rigs under construction) and PKD offers you a dynamite oil service company poised for remarkable year-over-year stock price appreciation.

In fact, PKD has gained 80.85% over the last 52 weeks, and with their quarterly earnings growing 161.80%, I’m quite confident that the gains in PKD have only just begun.

All things considered, I’d like to add shares of Parker Drilling (PKD – NYSE) to our small-cap ledger first thing Monday morning.

PLAY: Buy shares of Parker Drilling (PKD – NYSE) at or under $12.20, good for the week.

REMINDER: To further improve the delivery of our small-cap alerts, we will begin sending out all Bottarelli Research alerts from a new e-mail address. Starting with next Friday’s alert, we still stop sending alerts from bryan@bottarelliresearch.com and begin sending alerts from alert@bottarelliresearch.com. To ensure that you continue to receive all Bottarelli Research e-mail alerts to your inbox (and not your spam, junk, or bulk mail folder), please add alert@bottarelliresearch.com to your e-mail address book and/or safe senders list to white-list this new e-mail address. We also recommend that you white-list bryan@bottarelliresearch.com if you haven’t already done so. I’m alerting you of this now so you have plenty of time to prepare for this minor change ahead of time.

Sincerely,