However, there are also multiple reasons why you should still buy the stock. Canadian activity has picked up to offset broad weakness in North America. In addition, international business is starting to represent a larger amount of business for Baker Hughes Incorporated (NYSE:BHI). In the third quarter, international’s top-line rose 7% y-o-y while margins increased 80 bps yo-yo. While activity declined in Europe, the Middle East and Asia Pacific has driven excellent returns–partially through completion sales in Saudi Arabia.
Conclusion & Stock Fundamentals
Despite recent double-digit gains in value, I still find oilfield service stocks tremendously undervalued. With the S&P trading at over 17x, the industry is heavily discounted despite facing several strong catalysts: (1) greater fracking demand, (2) a positive swing in the macroeconomy, and (3) greater efficiency per rig. Schlumberger Limited. (NYSE:SLB) is somewhat expensive at 19.2x past earnings, but it is forecasted for around 17% annual EPS growth. And Halliburton Company (NYSE:HAL) is an easy steal at 14.9x past earnings. Its very immediate growth isn’t even fully factored into the stock price, as evidenced by the PEG ratio of 0.9x. The one risk is technical: it is up around 60% from the 52-week low, which is nearly 30,000 bps greater than Schlumberger’s return. However, the momentum is likely to continue unabated, in my view, due to improving trends in managing guar prices and clearing up excess capacity in oil basins. Even Baker Hughes Incorporated (NYSE:BHI) is reasonably priced at 15.6x past earnings, and it has risen “only” 23.3% from the 52-week low, the lowest.
The article Why I Love Oilfield Service Stocks originally appeared on Fool.com and is written by David Gould.
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