We recently published a list of Retirement Stock Portfolio: 12 Energy Stocks To Consider. In this article, we are going to take a look at where Schlumberger Limited (NYSE:SLB) stands against other energy stocks in retirement stock portfolio.
Navigating Energy Markets: The Financial Pressures on Clean Energy and the Ongoing Role of Fossil Fuels
In 2023, the clean energy sector took the biggest hit, bearing the brunt of global tensions more than any other sector. Supply chain disruptions, the energy crisis following Russia’s invasion of Ukraine, and the subsequent rise in interest rates and inflation impacted all sectors within the natural resources industry. Meanwhile, traditional energy companies capitalized on strong demand and high fossil fuel prices.
Despite these significant challenges, the necessity of transitioning to clean energy has never been more urgent. This is because, without it, the world will suffer from drastic economic losses associated with climate change. According to Deloitte’s report, “Financing the Green Energy Transition: A US$50 Trillion Catch”, the need for collaboration in developing investment strategies is crucial. As such, the collective investment necessary to achieve the transformation to clean energy is between $5 trillion and $7 trillion per year globally through 2050. Even though the renewable sector is facing pressures on financing, global investment in clean energy is set to double the amount going to fossil fuels this year.
According to the International Energy Agency, for the first time in 2024, total energy investment worldwide is expected to exceed $3 trillion, with an estimated $2 trillion going to clean technologies. The remainder is set to go towards coal, oil, and gas. According to the report, the combined investment in renewable power and grids overtook the amount spent on fossil fuels for the first time in 2023. Even though it is improving, the world needs to catch up on investing in clean energy to make the transition successful.
While the importance of clean energy can not be stressed enough, oil and gas companies continue to play a crucial role in the global energy landscape. They are benefitting from high energy prices and increased demand for fossil fuels as the transition to renewables progresses. This sector remains vital for meeting the world’s immediate energy needs and providing stability in energy markets during the transition period. 2022 was especially a blissful year for them, with skyrocketing oil prices bringing in record profits for oil companies. Big Oil more than doubled its profits to $219 billion. Of course, shareholders were rewarded with substantial returns, with top Western oil companies paying a record $110 billion in dividends and share repurchases to investors in 2022.
While the year was as sparkling as it could ever be, the $70 to $80 per barrel oil prices in 2023 fell short of the above $130 per barrel peak driven by the conflict in 2022. While recent spikes in oil prices, such as those following Russia’s invasion of Ukraine, provided opportunities for stock buybacks and investor rewards, companies face long-term challenges. The shale revolution and the pandemic have already impacted oil profits, and future demand for fossil fuels remains unpredictable.
Despite current financial stability and unchanged borrowing costs, energy firms are cautious about expanding production due to these uncertainties. One way to transition to clean energy that can help such companies is by strategically investing in and developing renewable technologies, such as offshore wind, hydrogen production, and EV charging infrastructure. Leveraging existing expertise and financial strength to diversify their energy portfolios and focusing on customer-centric business models and capital excellence is the way to go.
For retirees, investing in energy stocks offers compelling value due to their stability and dividend potential. Dividend-paying stocks are the kind of stocks one should invest in for retirement as they offer a regular stream of income, as well as allow the principal to remain invested for potential growth. Even though the clean energy sector faces challenges such as financial pressures and investment needs, the overall energy market remains robust. The shift towards renewables is driving significant capital into clean technologies, with global investments in clean energy expected to double those in fossil fuels in 2024. This ongoing transition creates opportunities for stable returns from companies that are involved in both traditional and renewable energy sectors.
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).
An aerial view of a well site, depicting the scale of oil and gas operations.
Schlumberger Limited (NYSE:SLB)
Schlumberger NV, also known as Schlumberger Limited, is an American oilfield services company. As of 2022, SLB has been the world’s largest offshore drilling company and the world’s largest offshore drilling contractor by revenue.
Schlumberger Limited (NYSE:SLB) has been paying dividends since 1994, with consistent dividend increases in the past three years. The current dividend yield for the company is 2.76% as of September 7. SLB shareholders received a quarterly dividend of $0.28 per share on June 05, 2024. It remains focused on generating strong cash flows to meet its commitment to return to shareholders.
As of Q2 2024, the company has demonstrated a strong quarterly performance. It beat earnings expectations with an EPS of $0.85, while expectations were $0.826. Revenue increased by 5%, while adjusted EBITDA grew 11%. It also generated $776 million of free cash flow. International revenue grew by 6% due to record-high performance in the Middle East and Asia, as well as strong results in deep water basins. The Gulf of Mexico led revenue growth in North America, albeit partially offset by weaker drilling in US land. Core divisions saw 4% sequential revenue growth and margin expansion, while Digital & Integration also achieved record quarterly growth.
Schlumberger Limited (NYSE:SLB) benefits from a robust clientele base, including major global oil corporations, Petrobras and Saudi Aramco. It is also set to benefit from oil majors ramping up production on economic growth, receiving a boost from lower interest rates. Moreover, it is also set to experience a strong resurgence of activity in the oil and gas business due to long-cycle development and capital expansion projects, supported by stable oil prices above $75 a barrel.
At the end of the second quarter, 67 hedge funds tracked by Insider Monkey held stakes in Schlumberger Limited (NYSE:SLB) having a total value of over $15.08 billion.
Overall, SLB ranks 7th on our list of energy stocks in retirement stock portfolio. While we acknowledge the potential of energy stocks, 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 NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. Retirement Stock Portfolio: 12 Energy Stocks To Consider is originally published on Insider Monkey.
