The death spiral in the energy industry has brought out every vulture that has had to stay in the trees for the past 10 plus years. Not only do they bring tidings of the stocks all going to zero, but they always have the “It could get even worse” posture. The bottom line is that like all malfunctions in market pricing the extremes always change the equation. As $130 was way too high in 2008, it’s reasonable to think that $28 or even less will be too low in 2016.
In a new report, RBC, like all the firms we cover on Wall Street, is ratcheting down its oil price estimates for 2016 and 2017. The firm lowered West Texas Intermediate this year to $40 per barrel from $52, and in 2017 to $57 from $62. Despite the big drop, RBC does see trading opportunities for aggressive accounts to consider.
We looked at the firm’s large cap diversified coverage and found three companies that could be outstanding trades for nimble investors. All are rated Outperform at RBC.
The company agreed over a year ago to a friendly merger with fellow oil field giant Halliburton in a deal worth an astounding $34.6 billion. Baker Hughes Inc. (NYSE: BHI), created in 1987, has developed innovative products like a rotary bit for drilling wells through rock.
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. As the scrutiny forges along, the European Union is now set to investigate the mega-merger over regulatory concerns. Halliburton and Baker Hughes extended the deal’s deadline to April 30 in December after the U.S. Department of Justice told the companies they haven’t offloaded enough assets to ease antitrust worries.
The long wait to get the deal done with Halliburton may be starting to grind on some, but many on Wall Street still think that there is a solid chance the deal is completed. It is has become clear that additional assets will have to be sold by the company in an even greater effort to get approval.
Baker Hughes investors receive a 1.7% dividend. The RBC price target for the stock is $72. The Thomson/First Call consensus target price is $62.44. The stock closed Tuesday at $39.79.