We recently compiled a list of the 10 Best Oilfield Services Stocks to Buy Now. In this article, we are going to take a look at where Halliburton Company (NYSE:HAL) stands against the other oilfield services stocks.
Brent crude oil prices have dropped below $80 per barrel from more than $90/bbl in April because of reduced demand for oil, growing worldwide stockpiles, and a decrease in geopolitical risks. In the first half of the year, prices were extremely volatile owing to rising geopolitical tensions, reductions in production by OPEC+ members, and indications of strengthening worldwide industrial production.
Global oil demand is decelerating, mirroring difficulties in the worldwide economic landscape, especially the reduction in China’s economic expansion. Amid the deceleration, oil prices finding support above the $70 barrel should be a boon for the oilfield service sector, which is highly dependent on oil and gas prices.
The oilfield and service sector is made up of companies that offer assistance to companies involved in the exploration and production of oil and gas. Consequently, the best oilfield services stocks to buy are of companies that assist in the production, repair, and upkeep of wells and drilling machinery. The companies receive multibillion-dollar contracts from integrated energy firms and independent and national oil and gas companies.
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When crude oil prices rise and remain well above the $70 barrel level, upstream companies’ ramp up spending on exploration and drilling activities, benefiting oilfield services companies. Increased spending translates to improved revenues and profit margins.
With oil prices finding support above the $70 per barrel level, the oilfield services sector should grow at a compound annual growth rate of 5.83% from $119 billion as of 2024. The robust growth is attributed to rising expectations of increased development of gas reserves and advanced technology.
While oil prices averaged $77 a barrel in 2023, persistently high inflation above 4% was one of the reasons that the oilfield services remained under pressure. That’s because upstream companies refrained from pursuing mega exploration and development projects.
Consequently, the overall oilfield service sector had a one-year return of −11.8%, underperforming the S&P 500, which was up by about 26%. The sector is down by about 3.87% for the year, underperforming the S&P 500, which is up by about 17%.
While the underperformance is a concern, it provides an ideal entry-level for the best oilfield services stocks to buy now, as most appear to be trading at a discounted valuation.
The global upstream industry is expected to maintain its hydrocarbon investment at about $580 billion in 2024, representing an 11% year-over-year increase. Likewise, the expected investments should make the case for investors to pay close watch to the best oilfield services stocks to buy now, trading at discounted valuations.
The second quarter showed growing momentum across different verticals in the oilfield services sector amid a slowdown in U.S. activity.
“The four major oilfield service companies are well-positioned to benefit from the multi-year global upcycle in E&P spending and the increasing demand for energy services and technology,” Evercore analyst James West wrote. “Strong earnings growth and margin expansion are being driven by international and offshore markets.”
Our Methodology
We used Yahoo Finance’s Screener to compile the list of the best oilfield services stocks to buy now. We scanned for the most significant oil & gas equipment & services companies and those with a substantial upside potential based on analysts’ average price targets. Once we had a consolidated list, we selected and ranked the stocks based on their upside potential.
We also mentioned the number of hedge funds that had bought these stocks during the same filing period. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A drilling rig in the desert with an orange sunset in the background.
Halliburton Company (NYSE:HAL)
Hedge Funds Holding Stakes: 41
Stock Upside Potential as of 12/08/2024: 43.10%
Halliburton Company (NYSE:HAL) is an oil and gas equipment Service Company offering production enhancement services, including stimulation and sand control. Its Drilling and Evaluation segment provides drilling fluid systems, performance additives, completion fluids, and solids control.
All the major petroleum companies are customers of Halliburton Company (NYSE:HAL), including Gazprom JSC, NC Gazprom Neft JSC, LUKOIL JSC, NC Rosneft JSC, Exxon Mobil Corporation (NYSE:XOM), Shell Plc (NYSE:SHEL), TotalEnergies SE (NYSE:TTE), and others.
While the stock is down by about 13% for the year, it boasts significant upside potential given the strong demand for its services, with oil prices well supported above the $70 a barrel level. With demand for high-quality services and equipment expected to be tight in the oil field services, Halliburton Company (NYSE:HAL) should be able to increase average revenue per rig.
The stock has been up by about 75% over the past three years, outperforming the 45% gain for the S&P 500. It is also one of the best oilfield services stocks to buy now, given that Halliburton Company (NYSE:HAL) rewards investors with a 2.18% dividend yield and trades at a price-to-earnings multiple of 9.
Wall Street analysts rate Halliburton Company (NYSE:HAL) as a Buy with a $44.36 price target implying 43.10% upside potential. As of the end of the second quarter, 41 hedge funds tracked by Insider Monkey held stakes in the company.
Here is what Carillon Eagle Mid Cap Growth Fund said about Halliburton Company (NYSE:HAL) in its fourth quarter 2023 investor letter:
“Halliburton Company (NYSE:HAL) provides equipment and services to the global energy industry. The company’s shares underperformed during the quarter, largely due to downward pressure on crude oil and natural gas prices. Despite this recent move, ongoing discipline among North American shale producers could continue supporting relatively healthy activity growth at current commodity price levels, which should provide stability to service providers such as Haliburton. The company is also poised to benefit from the ongoing, multi-year international and offshore upstream investment cycle that is less dependent on short-term swings in commodity prices.”
Overall HAL ranks 9th in our list of the best oilfield services stocks to buy. While we acknowledge the potential of HAL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than HAL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.