The death spiral in the energy industry has brought out every vulture that has had to stay in the trees for the past 10 plus years. Not only do they bring tidings of the stocks all going to zero, but they always have the “It could get even worse” posture. The bottom line is that like all malfunctions in market pricing the extremes always change the equation. As $130 was way too high in 2008, it’s reasonable to think that $28 or even less will be too low in 2016.

In a new report, RBC, like all the firms we cover on Wall Street, is ratcheting down its oil price estimates for 2016 and 2017. The firm lowered West Texas Intermediate this year to $40 per barrel from $52, and in 2017 to $57 from $62. Despite the big drop, RBC does see trading opportunities for aggressive accounts to consider.

We looked at the firm’s large cap diversified coverage and found three companies that could be outstanding trades for nimble investors. All are rated Outperform at RBC.

Baker Hughes

The company agreed over a year ago to a friendly merger with fellow oil field giant Halliburton in a deal worth an astounding $34.6 billion. Baker Hughes Inc. (NYSE: BHI), created in 1987, has developed innovative products like a rotary bit for drilling wells through rock.

The tie-up between the two oil field giants raised big questions about whether the takeover could survive antitrust scrutiny, given the level of consolidation that it promises within the oil production services business. As the scrutiny forges along, the European Union is now set to investigate the mega-merger over regulatory concerns. Halliburton and Baker Hughes extended the deal’s deadline to April 30 in December after the U.S. Department of Justice told the companies they haven’t offloaded enough assets to ease antitrust worries.

The long wait to get the deal done with Halliburton may be starting to grind on some, but many on Wall Street still think that there is a solid chance the deal is completed. It is has become clear that additional assets will have to be sold by the company in an even greater effort to get approval.

Baker Hughes investors receive a 1.7% dividend. The RBC price target for the stock is $72. The Thomson/First Call consensus target price is $62.44. The stock closed Tuesday at $39.79.
Halliburton

The stock is down over 40% since last May and could be offering the best entry price point since this time last year. Halliburton Co. (NYSE: HAL) now seems to be in the final stretch of getting the merger with Baker Hughes completed, and the trick is to find the right buyers for the businesses being divested as required by the Justice Department and the European Union.

The oil field giant announced last year a $1 billion investment to develop huge potential oil fields in Ecuador and 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 oil being absolutely demolished over the past year, this top oil service company is a great stock to buy on sale.

The company remains one of the top holdings in Jeffrey Ubben’s $19 billion ValueAct Capital’s portfolio, which holds over 37 million shares. It was also a new position added last year to Simon Sadler’s Segantii Capital hedge fund. Value buyers and bottom fishers are actively buying the stock at current levels.

Halliburton investors receive a 2.33% dividend. RBC has a $48 price objective, and the consensus target is $44.22. The shares closed Tuesday at $29.79.

Schlumberger

Many investors are unlikely to view this as a value stock, but given the debacle in the energy sector over the past year, the decline in share prices has pushed it almost to value levels. Schlumberger Ltd. (NYSE: SLB) remains the largest oilfield services company in the world for now, with far-reaching operations around the globe, and it could be poised for years of solid growth despite the huge turn down in oil pricing.

RBC and a host of other Wall Street analysts think the company will continue to drive margins on execution, technologies and efficiencies. Russia, Saudi Arabia, Iraq and China are expected by some to be the strongest markets, if geopolitical concerns remain somewhat in check.

Schlumberger announced last August a deal to buy oilfield services giant Cameron International in a deal expected to cost about $12.7 billion in cash and stock. Wall Street analysts note what they term the company’s “drive to disrupt the status quo,” which includes transformation initiatives like the gigantic purchase of Cameron. Trading at a low six times the firm’s normalized EBITDA estimates, the stock looks cheap.

For the fourth quarter analysts expect earnings per share to be almost 20% lower than the third-quarter numbers and 57% lower than a year ago. Weaker crude oil prices and lower spending by North American upstream energy producers will continue to take its toll on oilfield service companies, but trading at current levels, long-term investors have an excellent entry point.

Schlumberger investors receive a 3.17% dividend. The $92 RBC price objective is higher than the $86.72 consensus target. The shares closed Tuesday at $62.82.

Again, at these levels, traders might want to hop in for a trading bounce. However, long-term investors may want to scale capital in and buy shares over the next three to six months. These three stocks are among the best in the sector, and they will live to fight another day.

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