Stocks: (SLB)(XOM)
Schlumberger dominates the business of providing services to the world’s largest oil and gas companies. It is currently helped by the fact that oil and gas are harder and harder to find and recover. The company’s services are critical to helping Big Oil recover more deposits.
But, the stock has gotten expensive. As Morningstar points out: "With demand tied to a cyclical industry, Schlumberger’s primary risk is a protracted downturn in oil and gas prices. Pricing power can evaporate for service companies when drilling activity slows down."
Over the last five years, Exxon’s stock is up about 100%. Schlumberger’s is up closer to 200%. Its return is almost 2x of that of the industry its serves. At $68, it is well above its 52-week low of $47.19.
The sharp drop in crude oil prices and cautionary comments from Schluberger’s management have not helped perceptions of the company recently. If oil prices stay at current levels or drop further, SLB is not helped.
Douglas A McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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