As commodity prices fall, investors' bargain-hunting instincts kick into high gear. But it may be wise to wait before buying into certain oil- and gas-related stocks. "It's not yet time to buy oilfield-service stocks," Jim Wicklund, who covers this sector for Banc of America Securities, said in a recent conference call hosted by the firm. "It's best to be early, but early will most likely be the fourth quarter." He calculated high odds that gas prices would hit $1.50 per thousand cubic feet (Mcf) with more than five weeks left in the injection season. "While some people might think the worst-case scenario for gas is discounted in these stocks, we disagree," he said. Valuations of oilfield-services stocks should be more attractive starting in November 2001, he added. "All statistical information shows the cyclical bottom probably will be in the first quarter of 2002." The best stock valuations in the sector at press time were BJ Services, Nabors Industries Inc., Smith International Inc., Global Marine Inc. and Santa Fe International Corp., which are planning to merge, and Hanover Compressor Co. For independent refiners, the group valuation is attractive, but it would be best to wait to buy, said Tyler Dann, who covers independent refiners and integrated oil companies. Crack spreads have been pressured after the September 11 terrorist attacks, and the spreads historically decline through most of the fourth quarter, he said. The group has a favorable risk-reward profile, but is fighting seasonality and the uncertainty of demand. His top pick for the long-term is Valero Energy Corp. For integrated oils, caution is warranted, Dann said. Oil-demand growth is forecast to be only 0.6% for 2001 and 0.8% for 2002, he said. That's compared with a 10-year average demand growth of 1.3%. "We have reduced our demand forecast to reflect the higher probability of global recession," he added. His oil-price forecast is $27.50 a barrel for West Texas Intermediate for 2001, and $23.50 a barrel for 2002. The actions of OPEC are a major question mark right now in the wake of the terrorist attacks. "We think OPEC is in a bit of a pickle," Dann said. "Its primary weapon in the battle to keep prices high will be compliance with existing quotas, not necessarily further output cuts, since we believe those will be politically challenging-not impossible, but challenging during the next three to six months at least." From non-OPEC production, Dann expects strong growth in 2003-04, but the exploration and production capital-spending lag in 1999-2000 should limit growth in 2001-02. Dann's top pick is a defensive play-Exxon Mobil Corp. Other picks are ChevronTexaco Corp., which completed its merger recently, and Murphy Oil Corp. The valuations of E&P stocks have not yet sunk as low as, for example, oilfield-service stocks, said E&P analyst Mark Fischer. E&P stocks have rebounded 116% on average from their February 1999 lows and 61% from February 2000. However, they are 32% off their late-December highs, he said. Gas-in-storage is a main factor to watch. "We think there's still likely some rough sledding in coming months," he said. "We still are seeing a relative build in working-gas storage, although the above-normal injections have slowed to about 10 billion cubic feet (Bcf) of gas per week." Fischer's top picks include Apache Corp. and Kerr-McGee Corp. among large caps, and Pioneer Natural Resources Co. and Remington Oil & Gas Corp. among mid- and small caps.