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Halliburton Company (HAL), Schlumberger Limited. (SLB), National-Oilwell Varco, Inc. (NOV): Which Oil Play Is the Best Bet for Profits?

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Halliburton CompanyThe International Energy Agency expects oil demand to increase by a mere 0.9% this year. European demand and growth have been meager at best, while the mantle of global consumption is largely being carried forward by China. China’s total oil demand is expected to grow by 3.8% – a value less than initially calculated. Invariably, this will provide expected rising prices for the remaining year due to the country’s heavy import dependency on oil. In early 2013, 56% of the oil used by China was imported.

Amidst an overall weak forecast for the remaining year, what incentives can oil and gas services stocks offer to investors? In this article, I will assess the performances of Halliburton, Schlumberger and National Oilwell Varco.

Recent updates

Halliburton Company (NYSE:HAL) has had a steady upturn since Q3 2012, an appreciation of share price by almost 50%. The company’s financials are in a sound state even after it set apart $8 billion for the BP plc (ADR) (NYSE:BP) oil spill of 2010. The BP plc (ADR) (NYSE:BP) oil spill  continues to affect Halliburton Company (NYSE:HAL) as Texas joins a growing list of states suing the company for damages from the oil spill. However, with the growing courtroom action and with Texas being the latest addition, the company’s short-term growth prospects may be in jeopardy.

As global oil demand fails to grow, Halliburton Company (NYSE:HAL) is capitalizing on minimizing costs from its operations as it switches from diesel to compressed natural gas (CNG) – a cheaper and cleaner alternative. The company is also eying hydraulic fracturing opportunities in China, which has the world’s largest recoverable shale gas resources. Out from its competitors, the company has the highest efficiency metrics. Coupled with a high growth forecast, Halliburton Company (NYSE:HAL) is continuing its positive gradient on the price chart.

Schlumberger Limited. (NYSE:SLB) is the world’s leading services provider for oil and gas services. The company has geographically diversified assets, which allows it to withstand supply shocks. Slow growth is expected to continue in the North American region, but the Middle East, Russia and China are expected to be growth drivers this year.

China’s growth is largely driven by imported oil and this year, the country is only expected to grow its oil demand by 3.8% – which does not bode well for Schlumberger Limited. (NYSE:SLB). Weak demand, weak prices and weak volumes follow an unfavorable situation for the company’s share price, especially when its cost of doing business has been increasing for the last four years.

National-Oilwell Varco, Inc. (NYSE:NOV) recently acquired Robbins & Myers, which supplies equipment and systems in industrial markets, including energy and chemicals. In May, Warren Buffett doubled his stake in the company to $7.5 million shares. If that’s not enough to get an investor interested, the company also announced an increase in its quarterly dividend with the overall payment at $0.26.

For the present time, weak market demand from Northern America is hurting the company very strongly but the introduction of horizontal drilling and a surge in demand for offshore oil rigs is providing promising hopes for the future.

Competition

Using the P/E and P/B metrics, Halliburton Company (NYSE:HAL) and Schlumberger look fairly valued compared to the industry averages. National-Oilwell Varco, Inc. (NYSE:NOV), on the other hand, is  undervalued.

Indicator Halliburton Schlumberger National Oilwell Varco
Price/Earnings ttm 20.2 17.6 12.4
Price/Book 2.5 2.7 1.4
Net Income Growth (3 Yr Avg.) 32.0 20.6 19.3
Revenue Growth

(3 Yr Avg.)

24.8 22.6 16.4
Dividend Yield
, %
1.02% 1.64% 0.72%
Return on Equity 16.0 13.5 12.3
Current Price $42.37 $72.14 $69.65

Data from Morningstar and Financial Visualizations on June 13, 2013

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