We recently compiled a list of the 10 Best Oilfield Services Stocks to Buy Now. In this article, we are going to take a look at where Schlumberger Limited. (NYSE:SLB) stands against the other oilfield services stocks.
Brent crude oil prices have dropped below $80 per barrel from more than $90/bbl in April because of reduced demand for oil, growing worldwide stockpiles, and a decrease in geopolitical risks. In the first half of the year, prices were extremely volatile owing to rising geopolitical tensions, reductions in production by OPEC+ members, and indications of strengthening worldwide industrial production.
Global oil demand is decelerating, mirroring difficulties in the worldwide economic landscape, especially the reduction in China’s economic expansion. Amid the deceleration, oil prices finding support above the $70 barrel should be a boon for the oilfield service sector, which is highly dependent on oil and gas prices.
The oilfield and service sector is made up of companies that offer assistance to companies involved in the exploration and production of oil and gas. Consequently, the best oilfield services stocks to buy are of companies that assist in the production, repair, and upkeep of wells and drilling machinery. The companies receive multibillion-dollar contracts from integrated energy firms and independent and national oil and gas companies.
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When crude oil prices rise and remain well above the $70 barrel level, upstream companies’ ramp up spending on exploration and drilling activities, benefiting oilfield services companies. Increased spending translates to improved revenues and profit margins.
With oil prices finding support above the $70 per barrel level, the oilfield services sector should grow at a compound annual growth rate of 5.83% from $119 billion as of 2024. The robust growth is attributed to rising expectations of increased development of gas reserves and advanced technology.
While oil prices averaged $77 a barrel in 2023, persistently high inflation above 4% was one of the reasons that the oilfield services remained under pressure. That’s because upstream companies refrained from pursuing mega exploration and development projects.
Consequently, the overall oilfield service sector had a one-year return of −11.8%, underperforming the S&P 500, which was up by about 26%. The sector is down by about 3.87% for the year, underperforming the S&P 500, which is up by about 17%.
While the underperformance is a concern, it provides an ideal entry-level for the best oilfield services stocks to buy now, as most appear to be trading at a discounted valuation.
The global upstream industry is expected to maintain its hydrocarbon investment at about $580 billion in 2024, representing an 11% year-over-year increase. Likewise, the expected investments should make the case for investors to pay close watch to the best oilfield services stocks to buy now, trading at discounted valuations.
The second quarter showed growing momentum across different verticals in the oilfield services sector amid a slowdown in U.S. activity.
“The four major oilfield service companies are well-positioned to benefit from the multi-year global upcycle in E&P spending and the increasing demand for energy services and technology,” Evercore analyst James West wrote. “Strong earnings growth and margin expansion are being driven by international and offshore markets.”
Our Methodology
We used Yahoo Finance’s Screener to compile the list of the best oilfield services stocks to buy now. We scanned for the most significant oil & gas equipment & services companies and those with a substantial upside potential based on analysts’ average price targets. Once we had a consolidated list, we selected and ranked the stocks based on their upside potential.
We also mentioned the number of hedge funds that had bought these stocks during the same filing period. Why are we interested in 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)
Hedge Funds Holding Stakes: 67
Stock Upside Potential as of 12/08/2024: 51.55%
Given its role in providing oil and gas equipment and services, Schlumberger Limited (NYSE:SLB) is one of the best oilfield services stocks to buy now. With a market cap of about $65 billion, it is one of the most prominent players specializing in providing field development and hydrocarbon production. It also offers oil field services, including drilling, completion, and production solutions to upstream oil & gas companies in the U.S.
While Schlumberger Limited (NYSE:SLB) is down by about 17% for the year, it has rallied by more than 120% since 2021, outperforming the 45% gain of the S&P 500. It also rewards investors with a 2.52% dividend yield, which is ideal for generating passive income.
The fact that Schlumberger Limited (NYSE:SLB) has consistently beaten the S&P 500 affirms why it is one of the best oilfield service stocks to buy now. Its international and offshore segments outperform due to long-cycle development and capacity expansion projects. Oil supply cuts amid high demand should build a more supportive environment for higher oil prices, supporting the company’s prospects in the sector.
As of the end of the second quarter, 67 hedge funds tracked by Insider Monkey Database held stakes in the company. Schlumberger Limited (NYSE:SLB) is currently rated as a Buy with a $66 consensus price target, implying 51.55% upside potential from current levels.
In its fourth quarter 2023 investor letter, Artisan Value Fund said the following about Schlumberger Limited (NYSE:SLB):
“On the downside in Q4, our two energy holdings, Schlumberger Limited (NYSE:SLB), the world’s largest oil services company, and EOG Resources, a US 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 5th in our list of the best oilfield services 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 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.