Is Schlumberger Limited (SLB) A Smart Long-Term Buy?

ClearBridge Investments, an investment management firm, published its “International Growth ADR Strategy” second quarter 2021 investor letter – a copy of which can be downloaded here. The ClearBridge International Growth ADR Strategy outperformed its MSCI EAFE Index benchmark. The Strategy delivered gains across seven of the 10 sectors in which it was invested (out of 11 total), with the consumer staples, IT and consumer discretionary sectors the primary contributors. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

In the Q2 2021 investor letter of ClearBridge Investments, the fund mentioned Schlumberger Limited (NYSE: SLB), and discussed its stance on the firm. Schlumberger Limited is a Houston, Texas-based oilfield services company, that currently has a $42.9 billion market capitalization. SLB delivered a 40.45% return since the beginning of the year, extending its 12-month revenues to 62.22%. The stock closed at $30.61 per share on July 13, 2021.

Here is what ClearBridge Investments has to say about Schlumberger Limited in its Q2 2021 investor letter:

 “We returned to the energy sector with the purchase of services and equipment provider Schlumberger at what we view as a
trough in capital spending among oil and gas exploration and production companies. As a technology leader, Schlumberger should generate strong free cash flow over the next few years as the industry recovers, using its excess cash to gain market share from smaller players and to expand into new areas of growth. Through its scale, presence, partnerships and technology, Schlumberger is targeting expansion into new large addressable markets such as carbon capture, hydrogen, geothermal and lithium extraction.”

Based on our calculations, Schlumberger Limited (NYSE: SLB) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Schlumberger Limited was in 50 hedge fund portfolios at the end of the first quarter of 2021. SLB delivered an 11.61% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

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Disclosure: None. This article is originally published at Insider Monkey.