Schlumberger’s current P/E ratio stands at 25.35 and its forward P/E is set at 22.05. Those are rich numbers and reflect the fact that the boom in drilling next year has already been priced into the stock. The company’s stock has jumped nearly 30% in the past year and set a new 52-week high earlier this week. The company swallowed competitor Smith International earlier this year and its fluids business is among the
best in the sector. And fluids, which are used in the hydro-fracturing process of developing shale gas reservoirs, are likely to be in very high demand in 2011.
Halliburton shares have jumped more than 35% in 2010. The company’s P/E ratio sits at 25.30 and its forward P/E is a more modest 14.97. Halliburton could also benefit if Mexico’s Supreme Court ruling to allow the national oil company to contract with private companies is not legislated away. Halliburton (and other service companies) already have limited services contracts in Mexico, but the recently approved ‘integrated service contracts’ would offer larger payments and guarantees.
National Oilwell Varco’s P/E ratio is 17.27 and its forward P/E is 17.89. That seems about right because the company’s share price has risen more than 50% in 2010 and set a new 52-week high yesterday. Once again, the positive outlook for the entire industry is boosting National’s share price. Other than that, National doesn’t seem to be offering much. It’s implied gain is the lowest among the five companies we’ve looked at and its forward P/E is not highlighting any significant growth.
Baker Hughes has seen its shares rise about 40% in 2010, and it too set a new 52-week high yesterday. The company’s P/E ratio is 36.97 and its forward P/E is less than half that, at 17.48. There is some implied upside in Baker Hughes shares, but not enough to push the shares much higher.
Weatherford’s shares appear to be way over-valued. According to Yahoo Finance, the company’s P/E ratio for the trailing twelve months is 355.31 and its forward P/E is 18.34. Even if the P/E is off by an order of magnitude, that still values Weatherford pretty richly. Like National and Baker Hughes, Weatherford is getting a boost from the outlook for the entire industry.
The best stock for 2011 is Halliburton. The share price target of $49.27 is below Halliburton’s highest share price ever, above $52/share in June of 2008. The company is strong in Mexico and that could be its most significant asset in 2011.
Another way to play the services stocks is with the Oil Services Holdrs ETF (NYSE: OIH). Like many of the services stocks themselves, OIH set a 52-week high yesterday and has appreciated almost 20% in 2010.
Paul Ausick
