Baker Hughes Incorporated (BHI), Nabors Industries Ltd. (NBR), And How To Find Value in Oil Service Stocks

Unfortunately, as of yet, the share price has not dropped enough to allow the company to trade below it book value of $47.4 per share.

Company	Current Assets	Current Liabilities	Tangible Assets	Total Liabilities
Baker Hughes	10,420	4,120	19,740	9,420

Figures in $US millions

Baker Hughes Incorporated (NYSE:BHI) has a current ratio of 2.5, the lowest in the group. The company has a book value per share of $38.7 and cash value per share of $2.3. Baker Hughes Incorporated (NYSE:BHI) has a small amount of debt amounting to around 1x EBITDA.

Based on the balance sheets of these four companies, I believe that Rowan, with its cash balance and discount to book, and National Oilwell, with the group’s strongest balance sheet, could both offer potential for value investing.

Further study

It would be silly to say that National-Oilwell Varco, Inc. (NYSE:NOV) and Rowan Companies PLC (NYSE:RDC) operate in the same sector. While National Oilwell makes the parts for oil rigs and related equipment, Rowan actually operates the rigs — a completely different job.

Company	Net Margin	5-yr Revenue growth	5-yr EPS growth
Rowan	14.7%	-36%	-60%
National	12.5%	49%	19%

Rowan has been struggling over the past five years. The company’s revenue and EPS have fallen, while its net margin has fallen from 19.4% in 2008 to 14.7% during 2012.

On the other hand, National Oilwell has grown its revenue and EPS significantly over the period, although its net margin, like that of Rowan, has fallen from 14.5% to 12.5%.

Rowan has been the victim of falling revenue and rising costs. Indeed, during 2008, the company’s gross profit margin was 37%, unfortunately this margin now stands at 28%.

So, overall, as value investing goes, Rowan offers a good prospect. However, the company’s revenue and earnings have been on a decline over the past five years. That said, the company will start to take delivery of four new ultra-deep water high spec drilling rigs over the next few years, which should brighten the company’s dimming prospects.

Then again, if you are looking for growth without the risk that Rowan carries, National Oilwell could be your best bet.

The article Finding Value in Oil Service Stocks originally appeared on Fool.com and is written by Rupert Hargreaves.

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