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Commentary > The Bottom Line
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Former Enron bear sees value in energy
Ex-Merrill analyst John Olson still follows the industry and still calls it like he sees it.
August 12, 2002: 6:23 PM EDT
By Adam Lashinsky, CNN/Money Contributing Columnist

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PALO ALTO, Calif. (CNN/Money) - In April 2000, I wrote a column poking fun at Enron's then-stratospheric valuation. I spoke to a handful of energy-industry analysts, including one I didn't quote, John Olson.

By now, avid followers of the Enron debacle will be rather familiar with Olson. He's the former Merrill Lynch analyst whose name showed up in a flurry of stories several weeks ago, allegedly because Merrill bankers had him fired in 1998 when he wouldn't cheerlead for Enron.

Olson, who by 2000 was working for the boutique Houston firm Sanders Morris Harris, thought Enron's valuation was silly. But fearing retribution from a vindictive investor-relations team, he didn't want to talk about it on the record.

Interestingly, and coincidentally, I also interviewed Donato Eassey, then Merrill's energy analyst, who took great umbrage when I asked if Merrill had been a banker for Enron. Eassey was a big fan of the stock.

Where's Olson?

Today, Enron's gone as a stock to discuss and Eassey no longer is with Merrill. But what about John Olson? Happily, the 60-year-old analyst is still at Sanders Morris, still following (what's left of) the energy industry, and still calling it like he sees it. He's even bullish on some stocks.

"My whole business has been subjected to a meltdown," laments Olson, noting that in aggregate the eight companies he follows (half what his research universe used to be) are down 31 percent this year. "My mistake, as well as everyone else's, was thinking that a 10 to 12 P/E was safe," he says.

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Thus, nearly every stock he follows is down, including two successful companies that have been punished anyway, Duke Energy (DUK: up $0.38 to $26.71, Research, Estimates) and El Paso Electric (EE: up $0.40 to $13.70, Research, Estimates), and two struggling ones that he thinks ultimately will survive, Dynegy (DYN: down $0.19 to $1.57, Research, Estimates) and Williams (WMB: Research, Estimates).

He's recommending purchase of all the shares, with the assumption that they'll go up for two reasons. First, they'll experience so-called dead-cat bounces when the last of the short sellers abandons them.

Second, he sees solid growth in the energy business during the next five to 10 years, and he guesses that when growth resumes in the 2003 to 2005 timeframe these solid companies will benefit, particularly El Paso.

Olson also has a near-term stock pick in the little known Oneok (OKE: Research, Estimates), pronounced "One Oak." Tulsa, Okla.-based Oneok is a plodding, conservative natural gas company with $5.5 billion in assets that controls 15 percent to 20 percent of the country's natural gas preserves.

Its shares -- which are up 4 percent this year -- closed Monday at $19.30, or about 14 times Olson's estimate for 2002 earnings of $1.35 per share. Olson has been monitoring the imminent expiration of a Oneok convertible stock offering that, because of how Oneok must account for it, has been artificially diluting the company's share count.

Come Aug. 27, Olson believes the convertible notes will be converted into Oneok common stock, undiluting its shares to the tune of 30 cents share. In other words, he thinks 2002 earnings really will be something like $1.65 and that "the stock can go back to $23 to $25."

By the way, according to Olson, Sanders Morris doesn't do any investment banking for any of the stocks mentioned here. He has, however, owned shares of El Paso and Duke for between five and ten years. He's owned Oneok for more than ten.

A pox on my house

I wish I could tell you I was on vacation last week, lolling on the beach somewhere, or hiking in the mountains. I was -- and am -- home sick with the chicken pox. That's right, I never had them as a kid. And to show how lousy my luck is, most adults who haven't gotten chicken pox probably won't, according to the Centers for Disease Control.

Having said that, childless adults probably will be surprised to know -- as I was -- that there is an extremely safe and effective vaccine for chicken pox that's being administered to most children nowadays and can be given to adults as well. It's also possible for grownups who've never been afflicted with this incredibly uncomfortable illness to be tested for immunity.

So if you're one of the unlucky few out there like me who never got the pox as a kid, read about the vaccine and ask your doctor if you should get one. It could save you some nasty itching down the road.


Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at lashinskysbottomline@yahoo.com.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.