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 Weatherford International plc (NASDAQ:WFRD) 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).
A team of engineers in hardhats drilling for oil, clouds of smoke in the air.
Weatherford International plc (NASDAQ:WFRD)
Hedge Funds Holding Stakes: 41
Stock Upside Potential as of 12/08/2024: 44.65%
Weatherford International plc (NASDAQ:WFRD) is an oilfield company specializing in energy services and machinery supplies for the exploration, extraction, and intervention of oil and natural gas wells across the globe. It also provides directional drilling services and logging and measurement services during drilling operations; services related to rotary steerable systems are also offered.
Weatherford International plc (NASDAQ:WFRD) delivered a 10% year-over-year increase in Q2 revenue that totaled $1.41 billion as net income increased 31% year over year to $264 million, affirming why it is one of the ten best oilfield stocks to buy now.
The second half of the year’s adjusted free cash flow is anticipated to be significantly more significant than the first, confirming our forecast of an adjusted free cash flow exceeding $500 million for the year.
These forecasts align with the ongoing robustness in international and offshore operations, led by the Middle East/North Africa/Asia region, which showed 9% growth from one period to the subsequent and 29% growth compared to the same period last year in the second quarter. It currently pays a 0.94% dividend yield.
Weatherford International plc (NASDAQ:WFRD) commands a consensus Buy rating on Wall Street with a $156.67 price target implying 44.65% upside potential from current levels. The number of hedge funds holding stakes in the company stood at 41 as of the end of the second quarter compared to 38 as of the end of the first quarter.
Here is what Yacktman Asset Management said about Weatherford International plc (NASDAQ:WFRD) in its Q3 2022 investor letter:
“Weatherford International plc (NASDAQ:WFRD) shares rallied due to solid revenue growth and margin expansion. After many years of restructuring, the company’s results are improving significantly, which we think offers continued upside to the shares.”
Overall WFRD ranks 8th in our list of the best oilfield services stocks to buy. While we acknowledge the potential of WFRD 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 WFRD 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.
