The market's upward climb during the past few months has hordes of investors looking for stocks that may still be cheap enough to be worthy of their attention. Finding opportunities is a tough assignment because Mr. Market turned so quickly in the spring, and now a slew of sectors may be fully valued.
With crude prices sitting above $70 per barrel, even in the face of reduced demand, I'd like to point out to my Foolish friends that one group that seemingly has room to grow is the oilfield services sector. There are identifiable reasons for that neglect, the most obvious being the plummeting rig count in North America after the collapse of oil and gas prices over the last year.
Higher prices will benefit services
But energy has always been a cyclical business and, with our economy showing some signs of life, it's difficult to envision crude prices heading appreciably lower. The result, as I see it -- especially if black gold maintains a slow, steady, upward trek -- will be the reemergence of a number of projects that were summarily halted when commodities prices fell. That chain of events, which seems hardly far-fetched, would do wonders for the service sector -- at least for those investors with patience.
So should Foolish investors rush out and buy the first service stocks they stumble across? Definitely not. There are a couple of criteria that are highly significant in deciding which members of the group to tie into, given our current state of affairs:
For instance, Schlumberger (NYSE: SLB) operates through two divisions, with its far bigger oilfield services unit accounting for about 90% of its business. Of that amount, only about 17% of revenue is generated in North America. In contrast, Weatherford (NYSE: WFT), which is more heavily tied to its home continent, suffered a greater sequential decline in overall revenue compared to Schlumberger, as it saw North American contributions slide from 37% to 29% over the past two quarters.It's also appropriate to latch onto companies with strong technological bases. I've been stumbling around the oil patch since I was employed by a predecessor of Diamond Offshore (NYSE: DO) after graduate school. With that background, I'd rate a number of companies highly on the technology chart, but I particularly like Schlumberger and Baker Hughes (NYSE: BHI) for their technological strengths.But before we go any farther let's take a look at some of the oilfield service companies that I think have bright future.
Company
52-Week High
8/19/2009 Close
Forward P/E
Baker Hughes
$82.88
$37.10
18.49
Diamond Offshore
$117.37
$87.22
9.01
Halliburton (NYSE: HAL)
$46.62
$23.63
19.17
Noble (NYSE: NE)
$53.14 Continued... |