We recently compiled a list of the 7 Best Beaten Down Stocks to Invest In. In this article, we are going to take a look at where Schlumberger Limited. (NYSE:SLB) stands against the other beaten down stocks.
The equity market is on the cusp of a significant boost as the U.S. Federal Reserve joins other global central banks in cutting interest rates. While stocks have rallied for the better part of the year, as depicted by the S&P 500 gaining more than 17% year to date, three 25 basis point cuts by the Fed could send stocks even higher.
A lower interest rate environment is what the equity markets need; sentiments have taken a significant toll in recent months amid growing concerns about economic growth slowdown. With borrowing costs expected to decrease, companies should access cheap capital to enhance operations, generating more shareholder value.
READ ALSO: Billionaire Carl Icahn’s Top 10 Stocks and 14 Best 52-Week High Stocks to Buy According to Short Sellers.
Some of the best beaten-down stocks to invest in would be some of the biggest beneficiaries, especially if their core operations depend on the interest rate environment. According to Standard Chartered Chief Investment Officer Manpreet Gill, Federal Reserve easing should support stocks as the U.S. economy inches closer to a soft landing.
“Our baseline is still very much that a [U.S.] soft landing is achievable… It almost becomes a little bit more binary, because as long as we avoid that downside risk, equity earnings growth is still very supportive, and we’ve had sort of the positioning clean out in the recent pullback. And I think rate cuts, or at least expectation of those, really was the last piece markets were looking for. So on balance, we think it’s a positive outcome,” Gill said in an interview with CNBC.
As the monetary policy environment is poised to improve, the economic climate should receive a boost to support the overall equity market. Consequently, now would be the best time to pay close attention to the seven best-beaten-down stocks trading close to their 52-week lows. These are stocks well poised to outperform the overall market, their valuation having taken a significant hit.
While valuations in the equity markets, especially the tech sector, have gotten out of hand amid the artificial intelligence frenzy, stocks still offer a high-risk reward opportunity backed by solid underlying fundamentals. Similarly, while financial services sector stocks would be under pressure due to interest rates coming down, software information technology services and payment companies would be some of the big winners.
“We expect [sales] growth to accelerate through the remainder of the year with 5.5% growth in [second half] from 5.0% in [first half], driven by a progressive recovery in I.T. Services, having reached a trough of -2.7% organic growth in [first quarter] and finishing the year with +0.7% growth in [fourth quarter] as discretionary spend recovers,” said Bank of America analysts led by Frederic Boolean in a research note to clients.
Similarly, soaring geopolitical tensions in the Middle East and the uncertainty around the upcoming U.S. election also present an opportunity for investors in the market. Defense stocks offer an opportunity to diversify in anticipation of any market downturn.
Defense stocks are becoming increasingly popular, especially among fund managers at a time of soaring industry profits. Similarly, the stocks continue to outperform the overall market owing to higher defense spending as the government responds to soaring geopolitical risks.
On the other hand, there is also the possibility of the equity market rally stalling even with the Federal Reserve initiating rate cuts. If the cut comes in response to slowing growth, it could take some time before the economy returns. In such a scenario, it would be wise to bet on the best-beaten-down stocks that are well-positioned to remain resilient amid a challenging environment.
Our Methodology
To make our list of the best beaten down stocks to invest in, we first made a list of stocks trading near their 52-week lows (0-5%) range. We checked the hedge fund sentiment around 15 stocks with the largest market caps and then selected the 7 stocks that were the most popular among hedge funds. We ranked the stocks in ascending order based on the number of hedge funds that own stakes in them, as of Q2 2024.
At Insider Monkey, we are obsessed with 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).
An aerial view of a well site, depicting the scale of oil and gas operations.
Schlumberger Limited. (NYSE:SLB)
52 Week Range: $42.61 – $62.12
Current Share Price: $42.49
Market Capitalization as of September 3: $32.98 Billion
Number of Hedge Fund Holders: 67
Schlumberger Limited (NYSE:SLB) is one of the best beaten-down stocks for diversifying an investment portfolio in the energy sector. The company provides technology for the energy industry, focusing on Digital & Integration, Reservoir Performance, Well Construction, and Production Systems.
The company’s competitive edge stems from its robust clientele base, including major global oil corporations, Petrobras and Saudi Aramco. Additionally, the company is well positioned to benefit from oil majors ramping up production on economic growth, receiving a boost from lower interest rates.
Additionally, Schlumberger Limited (NYSE:SLB) is seeing a strong resurgence of activity in the oil and gas business driven by long-cycle development and capacity expansion projects. Oil prices finding support above $75 a barrel is positive for the oilfield services industry, for which the company is one of the big players.
The major player in oilfield services reported adjusted earnings per share (EPS) of $0.85, better than the consensus estimate of $0.83. The company’s quarterly revenues surpassed expectations, reaching $9.14 billion, surpassing the $9.08 billion predicted.
The company’s revenue saw a 5% increase from the previous quarter and a 13% growth compared to the year before, showing substantial expansion in an improving market. This growth was due to a wide range of international earnings and increased margins across all its divisions.
Schlumberger Limited (NYSE:SLB) is poised to continue experiencing steady growth in overseas markets, robust online sales, and cost reduction initiatives. This will support additional margin growth and help achieve its goal of increasing full-year adjusted EBITDA in the mid-teens.
With the stock trading at a price-to-earnings multiple of 14 and close to its 52-week lows, it remains one of the best beaten-down stocks to invest in, especially for its 2.50% dividend yield. As of the end of the second quarter of 2024, 67 hedge funds tracked by Insider Monkey Database held stakes in the company.
Here is what Artisan Value Fund said about Schlumberger Limited (NYSE:SLB) in its fourth quarter 2023 investor letter:
“On the downside in Q4, our two energy holdings, Schlumberger Limited (NYSE:SLB), the world’s largest oil services company, and E.O.G. Resources, a U.S. shale-focused E&P company, were weak along with the broader sector. We have stringent criteria for business quality, which is particularly important in commodities sectors as these businesses do not control the underlying commodity prices, which can be volatile. We expect Schlumberger to continue to successfully navigate market volatility and deliver on its free cash flow and profit margin growth objectives from combination of activity growth and pricing gains. The stock has been among our top contributors since we initiated our position in December 2020.”
Overall SLB ranks 1st on our list of the beaten down stocks to buy. 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, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.