Energy Business

Deutsche Bank Says Strong Earnings Can Drive Top Oil Service Stock Picks

Despite West Texas Intermediate (WTI) finally poking its nose briefly below $100 a barrel after what seems an eternity, one thing remains a steady constant in the oil services sector. The top companies, especially working onshore in North America, are hitting on all cylinders. With everybody from the biggest integrated oil and gas players to the smallest independents drilling, the sector may be poised for a continuation of this year’s winning ways.

A new research report from Deutsche Bank acknowledges that price-to-earnings multiples have jumped dramatically this year on the huge rally in the stocks. They point out though, that those multiples were coming from near-record lows and have really just moved back to the historical range after years of underperformance.

Deutsche Bank still sees strong second-quarter earnings, as well as possible upward revisions to estimates, as a catalyst for the sector. The analyst team sees the huge sector leaders as possibly closed to fully priced and focus their top stocks to buy, including four listed as their top sector picks, on smaller names with more potential upside.

While Deutsche Bank is still very positive on the mega-cap leaders in the field, they feel that most of the good news and earnings growth is priced into the stocks. Their current picks may make sense for investors looking to stay in the sector, but rotate some gains from the big boys.

ALSO READ: High-Yielding MLPs That Can Outperform for the Rest of 2014

Baker Hughes Inc. (NYSE: BHI) ranks high on the Deutsche Bank list and is one of the bank’s top picks. The company is a leading supplier of oilfield services, products, technology and systems to the worldwide oil and natural gas industry. With more than 59,000 employees working in more than 80 countries, the company helps its customers find, evaluate, drill, produce, transport and process hydrocarbon resources.

Baker Hughes investors receive a 0.9% dividend. Deutsche Bank has an $86 price target on the stock. The Thomson/First Call consensus price target for Baker Hughes is at $81.25. The stock closed Wednesday at $74.39 a share.