Every day it seems like we see new highs in the S&P 500, and bitcoin up another $1,000, and for most investors the urge to chase the performance and huge gains is probably overwhelming. However, the best thing to do for 2018 and beyond is look for the sweet spots in the market where there is still some relative value. One of those areas for sure is energy, especially in oilfield services.
A new and very comprehensive SunTrust report makes the case that oil could go higher than current consensus and that it is possible that the OPEC/non-OPEC voluntary cuts could be extended into 2019. SunTrust remains very positive on oilfield services for 2018, and the report noted this:
Rising cash flows should drive further increases in U.S. upstream spending in our opinion, with U.S. upstream spending forecast to increase by 25% in 2018 with a similar increase in 2019, driven by continuing development of onshore oil shales.
These five Buy-rated stocks have big upside to their SunTrust targets, and all make sense for growth accounts with some risk tolerance looking to add energy exposure.
Halliburton
This stock is still down over 20% from highs printed last January but it remains a top large cap oil services pick at SunTrust. Halliburton Co. (NYSE: HAL) is one of the world’s largest providers of products and services to the energy industry. It serves the upstream oil and gas industry throughout the life cycle 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.
Halliburton is the second-largest provider of oil services and the number one player in pressure pumping services worldwide. For investors looking for an oilfield services company to add, this is arguably the best, and analysts feel it will be a huge benefactor as the frac market has tightened significantly and prices are 20% to 30% off the lows.
The company posted solid third-quarter results that topped analysts’ estimates, driven by better pricing and increased activity in North America, its biggest market. Revenue from North America surged 91% to $3.16 billion in the three months ended September 30, due to a “strengthening of market conditions” in the region. Total revenue rose 42% to $5.44 billion. Net profit attributable to Halliburton rose to $365 million in the quarter from $6 million a year earlier.
Halliburton shareholders receive a 1.62% dividend. The SunTrust price target for the shares is $54. The Wall Street consensus target is $52.91. The shares closed Thursday at $44.41.
Nabors Industries
This company provides drilling and rig services, and some feel it could be a takeover target. Nabors Industries Ltd (NYSE: NBR) owns and operates the largest land-based drilling rig fleet in the world, and it is a leading provider of offshore platform workover and drilling rigs in the United States and select international markets. Revenues in 2016 were $2.23 billion.
Nabors markets approximately 400 rigs for land-based drilling operations in the United States, Canada and approximately 20 other countries worldwide, and 41 rigs for offshore drilling operations in the United States and internationally.
The stock is down 62% year to date, which reflects investor focus on its balance sheet and ability to generate free cash flow and pay down debt. This concern has been exacerbated recently by a softer-than-expected earnings report and focus on 2018 noncash deferred revenues. While most don’t see a quick fix for the company, the worst surely looks to be over.
Nabors investors receive a 4% dividend, which could be lowered going forward. SunTrust has a $9 price target, and the consensus price objective is $8.66. Shares closed on Thursday at $5.58.
U.S. Silica
This stock has been absolutely smoked but has awesome upside potential. U.S. Silica Holdings Inc. (NYSE: SLCA) is a leading producer of commercial silica used in the oil and gas industry and in a wide range of industrial applications. Over its 117-year history, it has developed core competencies in mining, processing, logistics and materials science that enable it to produce and cost-effectively deliver over 200 products to the firm’s customers across all end markets.
The company currently operates nine industrial sand production plants and eight oil and gas sand production plants. With the price of oil stabilizing, many of the short-sellers that targeted the frac sand companies may be starting to cover their positions. Toss in increased shale activity in 2018 and this could be a big winner.
Shareholders are paid a 0.75% distribution. The whopping $63 SunTrust price target compares with the $43.98 consensus target. The stock closed Thursday at $34.45.
Superior Energy Services
Superior Energy Services Inc. (NYSE: SPN) serves the drilling, completion and production-related needs of oil and gas companies worldwide through its brand name drilling products and its integrated completion and well intervention services and tools, supported by an engineering staff who plan and design solutions for customers.
The company is a favorite midcap stock to play the U.S. land services recovery, and analysts think investors should see the impact of cost reductions as this year ends and we head into 2018. Some feel that could help offset pricing pressure. The sector downturn in 2018 led to reductions in capex and capacity attrition, a positive for the survivors like Superior that have managed both extremely well in a very difficult environment.
The SunTrust price target is $13. The consensus target is $11.63, and shares closed Thursday at $8.73.
Weatherford
This company has been absolutely demolished from its 2014 highs, but it may be offering aggressive investors big upside potential. Weatherford International Ltd. (NYSE: WFT) is one of the largest multinational oilfield service companies, providing innovative solutions, technology and services to the oil and gas industry. It operates in over 100 countries and has a network of approximately 1,200 locations, including manufacturing, service, research and development, and training facilities and employs approximately 37,000 people.
The company offers customers a wide range of global capabilities, including a proprietary system for pressure management in the mushrooming arena of subsea production. The changes in government oil policy in Mexico in 2014 may provide some favorable tailwinds for the company, despite the huge downturn in oil pricing.
Weatherford entered into joint venture with Schlumberger back in March, which will own 70% and be the operator of the hydraulic fracturing partnership and is known as OneStim. Weatherford will own 30% and received a one-time cash payment of $535 million. This could prove a huge driver for the company in 2018, and some still feel that a buyout of the company is possible.
SunTrust has set its price target at $6. That compares with the consensus price objective of $5.50 and the most recent closing share price of $3.35.
These are five stocks to buy for big potential gains in 2018. They run the full risk gamut, so investors need to gauge their capital investment to their risk tolerance. One thing is certain, the sector offers far more value than many and makes sense to buy now.
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