Well, it wasn’t quite how I imagined it happening, but it happened nonetheless. Smith International, Inc. (NYSE:SII) is up another 8% today on the buyout offer from Schlumberger (NYSE:SLB), which followed a 13% jump on Friday.

All told, we’re up 35% on the trade since our November 9th purchase at $29.96. That’s not bad for three month’s worth of work.

More importantly, I’m going to go ahead and take the profit by selling the SII shares currently in the model portfolio. If you’re following my lead, I think you should do the same too.

Smith International, Inc. (NYSE:SII)

While there’s always a chance that Schlumberger could sweeten the pot a bit more, there’s also a chance Schlumberger could take the offer off the table. The potential upside of a few more cents pales in comparison to the downside here. So, let’s not get greedy – let’s think logically, and cash in the bird we have in our hand rather than hope for the two in the bush. (Besides, the process of converting an acquired company’s shares to cash is lengthy, and can often result in your broker charging you for the service.)

As for a stock to replace this one, I’ve got nothing I want to dive into today. However, our watchlist is plentiful. I expect to wade into one or two of those names later this week and/or early next week.

Here’s the most recent watchlist.

Watchlist - 02/22/10