We recently compiled a list of the 10 Best Energy Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where Schlumberger Limited (NYSE:SLB) stands against the other energy stocks.
In an interview on October 3 with CNBC, Andy Critchlow, who serves as the head of news for the EMEA region at S&P Global Commodity Insights, discussed the current state of the oil market and the potential implications of various geopolitical events on oil prices.
Critchlow noted that the oil market is facing “dangerous times” due to a high level of geopolitical risk and that it’s hard for anyone in that market to gauge the direction of the market. However, he pointed out that this geopolitical uncertainty has not yet been reflected in the price of oil, despite events between Israel and Iran and numerous attacks on oil shipping in the Strait of Hormuz over the past two years. The price of oil has not surged significantly and there is no geopolitical risk premium as oil still is currently trading at less than $75 per barrel.
Critchlow also discussed the potential impact of a disruption to Iranian oil supplies, which account for around 4% of global supply. He noted that any attack on Iranian oil facilities or refineries could have a significant knock-on effect in the region. However, Critchlow noted that the market is looking ahead to next year and the potential for an excessive supply, there is already an idled supply of 5.6 million barrels per day on the sidelines.
According to Critchlow, the oil market is also challenged by supply and demand imbalances and the potential for a price war between OPEC+ members is a real concern. Critchlow commented on recent comments from the Saudi Energy Minister on October 2, who warned of the potential for $50 oil if OPEC+ members don’t stick to agreed-upon production limits. Critchlow interpreted this as a veiled threat, suggesting that Saudi Arabia may be prepared to start a price war if other members of the OPEC+ alliance do not comply with production cuts.
According to Critchlow, Russian crude was displaced from its traditional European markets and flowed into China and India, which are some of the biggest drivers for the oil market. These were the markets that Saudi Arabia effectively owned with its major Gulf partners in OPEC and that is why Saudi’s market has been squeezed in its core markets by Russia.
While the current price of oil remains relatively stable, the underlying risks and challenges suggest that a significant shift in the market could be on the horizon. With that in context let’s take a look at the 10 best energy stocks to buy according to hedge funds.
An oil rig surrounded by the expanse of sea, the pumping operations in progress.
Our Methodology
To compile our list of the 10 best energy stocks to buy according to hedge funds, we used the Finviz and Yahoo stock screeners to find the largest energy companies. We then narrowed our choices to 10 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
Why do we care about what hedge funds do? 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).
Schlumberger Limited (NYSE:SLB)
Number of Hedge Fund Investors: 67
Schlumberger Limited (NYSE:SLB) is a prominent oilfield services company that provides solutions for the exploration and development of oil and gas resources in more than 85 countries.
In Q3, Schlumberger Limited’s (NYSE:SLB) revenue increased 10% year over year to $9.16 billion. Despite the flat revenue compared to the previous quarter, the company achieved a notable increase in its adjusted EBITDA margin, which expanded by 55 basis points to 25.6%. Additionally, the company generated a significant $1.81 billion in free cash flow during the quarter, while earnings per share (EPS) reached $0.89, excluding charges and credits.
The company’s digital and integration segment delivered a strong performance, with revenue increasing by 4% sequentially to $1.1 billion. The segment’s margins also expanded by 456 basis points to 35.5%, demonstrating the company’s growing expertise in digital solutions. Meanwhile, the production systems segment saw a 3% sequential increase in revenue to $3.1 billion, with margins expanding by 110 basis points to 16.7%.
In terms of cash flow, Schlumberger Limited (NYSE:SLB) reported $2.4 billion in cash flow from operations, while capital investments totaled $644 million during the quarter. The company also returned a significant amount of capital to shareholders, repurchasing 11.3 million shares for $501 million. Furthermore, Schlumberger Limited (NYSE:SLB) announced several new digital products and partnerships, including collaborations with NVIDIA and Amazon Web Services.
On October 10, Schlumberger Limited (NYSE:SLB), Amazon Web Services (AWS), and Shell Global Solutions Nederland announced a multi-year collaboration agreement to deliver digital end-to-end workflows for Shell using Schlumberger Limited’s (NYSE:SLB) subsurface solutions on AWS cloud infrastructure. The partnership aims to provide high-performance and cost-efficient subsurface digital solutions, which will be used by Shell and made available to the industry.
The collaboration will utilize a data platform to enhance the user experience, increase efficiency and collaboration, and produce better insights for Shell and the energy industry. This agreement builds on the existing strategic collaboration between Schlumberger Limited (NYSE:SLB) and AWS, accelerating the availability of Schlumberger Limited’s (NYSE:SLB) industry-leading software, including Petrel subsurface solutions and Techlog wellbore solutions, on AWS.
Overall SLB ranks 3rd on our list of the best energy stocks to buy according to hedge funds. While we acknowledge the potential of SLB 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 SLB 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.