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Week in Stocks: Strong Results from a Top Energy Pick

Plus, Berkshire posts blowout quarter, student lenders sell off, and more.

Jeffrey Ptak, 11/13/2006

Morningstar's 100 stock analysts cover 1,800 companies. Their full analyst reports are available through Morningstar Principia Stocks Advanced and Morningstar Advisor Workstation Office Edition.

Morningstar analyst Catharina Milostan, Pioneer Natural Resources PXD took another step toward targeted 10%-plus production growth in 2007 with a strong fiscal third-quarter showing.

Net income from continuing operations surged 30.6% from the year-ago quarter, and accelerated drilling in North America spurred 3% production gains during the quarter from the first half of 2006. Encouraging as these results are, Milostan believes the outlook for drilling activity over the next few years is a more telling measure. On that front, Milostan sees mounting evidence that Pioneer's shift to lower-risk onshore North American properties--the company has expanded to 40 rigs in North American from only 23 at year-end 2005--will net more-consistent, drilling-driven production gains.

In addition, Milostan notes that Pioneer remains on track to start up major projects in 2007 and 2008, including its South Coast Gas project in offshore South Africa and Oooguruk project on the North Slope of Alaska. In short, the story is playing out as Milostan had forecast. Thus, she's leaving her fair value estimate unchanged.

Berkshire Earnings Climb
On Friday, Berkshire Hathaway BRK.B reported earnings of $7.4 billion through the first nine months of the year, exceeding Morningstar analyst Justin Fuller's expectations.

Improved profitability in the reinsurance businesses, thanks to a very quiet Atlantic hurricane season, drove earnings. Even though profiting from catastrophe reinsurance this year now looks like it was shooting fish in a barrel, Fuller thinks Berkshire's success was due to its strong appetite for risk and fortress-like financial strength. In his view, these competitive advantages allowed the conglomerate to charge higher prices and take on more catastrophe exposure, while most other reinsurers were running for cover.

Berkshire's other businesses also delivered good results, in Fuller's view, as auto insurer Geico's premiums climbed 9.9%, helping Berkshire's overall cash balance swell to more than $42 billion. In view of these strong results, Fuller plans to increase his fair value estimate for each Berkshire Class B share.

Election Dings Student Lenders
In what Morningstar analyst Ryan Batchelor thinks is an overreaction, investors sold off a pair of student lender stocks, Sallie Mae SLM and Student Loan Corporation STU, on Wednesday.

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