If there is one thing that has played out before, it is the boom and bust cycle in the oil industry. As a result there have always been some predictable “playbook” trades to take advantage of the up and down stock moves. In a new report, the analysts at Deutsche Bank agree history repeats itself, but this time may be a little different.
While the Deutsche Bank team believe oil market supply and demand fundamentals are beginning to tighten, and in the past this was the time to begin buying energy stocks for the reversal, they think this upcycle will be far more subdued in the overall pace of the move. The also think that the well service companies could be the biggest beneficiaries.
The Deutsche Bank analysts’ three top oil service stock picks are Basic Energy Services Inc. (NYSE: BAS), Key Energy Services Inc. (NYSE: KEG) and Superior Energy Services Inc. (NYSE: SPN).
Basic Energy Services
This company provides well site services essential to maintaining production from the oil and gas wells within its operating area. It employs more than 5,100 employees in more than 100 service points throughout the major oil and gas producing regions in Texas, Louisiana, Oklahoma, New Mexico, Arkansas, Kansas and the Rocky Mountain and Appalachian regions.
Portfolio manager Dmitry Balyasny just bought a significant chunk of the stock. In a filing with the Securities and Exchange Commission, the firm reported buying a whopping 2.6 million shares of the stock.
The Deutsche Bank price target is $10, which is down from $14. The Thomson/First Call consensus target is $7.99. Shares close on Friday at $6.89.
Key Energy Services
Investors may benefit from a substantial fall in this stock’s price since last summer. Down a gigantic 80% from highs posted a year ago, the company may be a way for investors looking to get substantial leverage on an oil services stock, and at this price level, Key Energy Services could be a takeover candidate.
The company bills itself as the largest onshore, rig-based well servicing contractor based on the number of rigs owned. It provides a complete range of well intervention services and has operations in all major onshore oil and gas producing regions of the continental United States and in Mexico, Colombia, Ecuador, the Middle East and Russia.
The Deutsche Bank price target is $3. The consensus target is posted at $2.45. Shares closed Friday at $1.85
Superior Energy Services
Superior Energy Services 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 Deutsche Bank analysts feel that the company should benefit on both the pumping and well service side of the industry. They also feel that Superior could be the single biggest beneficiary of potential divestitures coming from the Baker Hughes Inc. (NYSE: BHI) and Halliburton Co. (NYSE: HAL) merger.
Investors are paid a 1.6% dividend. The Deutsche Bank price target is $27, and the consensus target is $25.18. The stock closed Friday at $22.06.
With two stocks trading under $10, investors not only have a way to put together a larger position of these top picks, they may also have a way to play consolidation in the industry as well.