Despite the nice run in oil and selected exploration and production stocks, the fact of the matter is that for oil field services it may take longer for the recovery to manifest into solid earnings gains. For many producers, the $50 a barrel level is where profitability starts to work, and shuttered oil wells are not turned on easily like a light switch. In fact, it can take up to six months to get wells up and running again.

In a new research report, Merrill Lynch reinstates coverage of oil field services with what they analysts call a “selective” view. They, like others on Wall Street are cautiously optimistic, and while they think the land services companies will be the first to benefit, they also see a drawn-out recovery. Three top picks are highlighted in the report, all are rated Buy.

Halliburton

Shares of this company have ticked higher since the deal with Baker Hughes fell through due to regulators concerns, but they are still down almost 50% from highs printed two years ago. Halliburton Co. (NYSE: HAL) is one of the world’s largest providers of products and services to the energy industry. The company serves the upstream oil and gas industry throughout the lifecycle of the reservoir, from locating hydrocarbons and managing geological data to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.

The oil field giant announced last year a $1 billion investment to develop huge potential oil fields in Ecuador and it has entered into a long-time deal with Petroamazonas, an Ecuador-based company involved in the exploration and development of the country’s oil reserves. With the price of oil being absolutely demolished over the past year, this top oil service company is a great stock to buy on sale, as the oil recovery has shown some legs.

The Merrill Lynch team cites the end of the Baker Hughes deal as removing uncertainty on the company, and they also think that the company still has acquisition possibilities, which could help expand the business footprint.

Halliburton investors are paid a 1.62% dividend. The Merrill Lynch price target for the stock is $53, and the Thomson/First Call consensus price target is $46.32. The shares closed Monday at $44.28.
Helmerich & Payne

This company primarily operates as a contract drilling company. Helmerich & Payne Inc. (NYSE: HP) provides drilling rigs, equipment, personnel and camps on a contract basis to explore for and develop oil and gas from onshore areas and fixed platforms, tension-leg platforms and spars in offshore areas. Its contract drilling business operates through three reportable segments: U.S. Land, Offshore and International Land.

The company posted earnings that many felt came in much better than expected. At last report, the company’s U.S. Land rig segment, which is its largest business, had a utilization rate of 31%, compared to 68% this time last year. The International Land operations also saw utilization rates decline to 38%. What is slightly surprising, though, is that the average margin for a rig in use increased between this quarter and the same time last year.

Merrill Lynch feels that the company is one of the best positioned for the U.S. land recovery, and the team also cites the strong balance sheet and the sector-leading dividend.

Helmerich & Payne investors receive a very big 4.36% dividend. Merrill Lynch has a massive $75 price target, while the consensus price objective is only $56.96. Shares closed Monday way above that level at $64.24.

Nabors Industries

This company provides drilling and rig services. Nabors Industries Ltd. (NYSE: NBR) offers rig instrumentation, optimization software and directional drilling services. It also provides completion, life-of-well maintenance and plugging and abandonment of a well.

In addition, the company markets approximately 466 land drilling rigs for oil and gas land-based drilling operations in the United States, Canada and approximately 20 other countries worldwide; approximately 445 rigs for land well-servicing and workover services in the United States; 98 rigs for land well-servicing and workover services in Canada; 42 rigs for offshore drilling operations in the United States and internationally; and seven jackup units and components of trucks and fluid hauling vehicles.

The Merrill Lynch team thinks that concerns over the company’s balance sheet are way overblown, and at current levels the shares are pricing in a much slower and modest industry recovery. They also cite the international exposure, which they see as providing more stability.

Nabors investors are paid a 2.3% dividend. The $14 Merrill Lynch price target is higher than both the consensus price objective of $11.21 and Monday’s closing share price of $10.30.

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Three top picks for investors to consider. It may be smart to buy a partial position here, and see if the market doesn’t come in some. With a plethora of potential market moving events on the horizon, caution makes sense now.

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