Energy
Huge Oil Sell-Off Is Opportunity to Buy 4 Companies That Should Survive and Thrive
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If there has ever been a boom-to-bust sector over the years, it has been energy. Despite all the past lessons learned, the same mistakes continue to be made when times are good: overproduction, too much leverage and too much capital expenditure spending.
Angie Sedita and her team at UBS have pointed out often that drilling has slowed to the lowest pace in years, and now is not the time to speculate on shaky companies. The stocks rated Buy at UBS are all the sector leaders.
Baker Hughes
The company agreed almost a year ago to a friendly merger with fellow oil field giant Halliburton in a deal worth an astounding $34.6 billion. The tie-up between the two oil field giants raised big questions about whether the takeover could survive antitrust scrutiny, given the level of consolidation that it promises within the oil production services business.
Created in 1987 with the merger of Baker International and the Hughes Tool company, Baker Hughes Inc. (NYSE: BHI) has created innovative products like a rotary bit for drilling wells through rock.
The long wait to get the deal done with Halliburton may be starting to grind on some, but the merger agreement does allow the two companies to extend the deal into 2016. UBS still thinks that there is a 90% chance the deal is completed, and while Halliburton has maintained it will close this year, UBS sees a 2016 close more likely. The firm also thinks that additional assets could be sold by the company in an even greater effort to get approval.
Baker Hughes investors receive a 1.27% dividend. The UBS price target for the stock is $70. The Thomson/First Call consensus price target is at $67.87. The stock closed Thursday at $52.62.
Halliburton
The stock is down over 20% since May and could be offering the best entry price point since last January. Halliburton Co. (NYSE: HAL) now seems to be in the final stretch of getting the aforementioned merger with Baker Hughes completed, and the trick is to find the right buyers for the businesses that are required for the divestitures required by the Department of Justice.
The oil field giant announced last year a $1 billion investment to develop huge potential oil fields in Ecuador and has entered into a long time deal with Petroamazonas, an Ecuador-based company involved in the exploration and development of the country’s oil reserves. With oil being absolutely demolished over the past year, this top oil service company is a great stock to buy on sale.
The company remains one of the top holdings in Jeffrey Ubbens $19 billion ValueAct Capital portfolio. It was also a new position added to Simon Sadler’s Segantii Capital hedge fund. Value buyers and bottom fishers are actively buying the stock at current levels.
Halliburton investors receive a 1.9% dividend. UBS has a $60 target price, well above the consensus estimate of $46.37. The shares closed Thursday at $38.01.
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