Intuitively, many investors feel that energy should be a solid trade going forward, given the poor performance of the related subsectors this year. The reality is that while the value is probably there, the sentiment isn’t, and with oil seemingly trapped in the $45 to $50 range, investors must be careful and not get caught in a bear trap. The best plan is to go with the top picks that major Wall Street firms are sticking with.
A new JPMorgan research report notes that while the oil field services index (OSX) is setting eight-year lows and seems to be begging for a strong contrarian call, the reality is investors may have to wait until next year for the market to become more bullish on the sector. The firm trims its top picks to five companies, two large cap and three small-mid cap companies that the analysts feel offer investors the best upside now.
This stock is still down almost 25% from highs printed for this year in January and remains the top large cap pick on Wall Street. Halliburton Co. (NYSE: HAL) is one of the world’s largest providers of products and services to the energy industry. It serves the upstream oil and gas industry throughout the life cycle of the reservoir, from locating hydrocarbons and managing geological data to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.
Halliburton is the second-largest provider of oil services and the number one player in pressure pumping services worldwide. For investors looking for an oilfield services company to add, this is arguably the best, and analysts feel it will be a huge benefactor as the frac market has tightened significantly and prices are 20% to 30% off the lows.
The company posted solid second-quarter results, and analysts were encouraged by Halliburton’s restraint regarding frac newbuild equipment and believe the recent reset somewhat derisks smid-cap frac prints. Yet the company’s full third-quarter frac schedule suggests runway for others in the oilfield services arena.
Shareholders receive a 1.86% dividend. The JPMorgan price target for the stock is $55. The Wall Street consensus target is $54.03. Shares closed Tuesday at $41.26.
This is another large cap company that the analysts are becoming more positive on. Technip FMC PLC (NYSE: FTI) is a U.K. company and a global leader in subsea equipment and onshore and offshore engineering and construction projects. It also has activities on the surface, including drilling and well services.
The company reported second-quarter diluted earnings that beat the consensus estimate. The improved results were driven by steady project executions, achievement of key milestones, efficiencies from its industry-leading solutions and cost reduction efforts.
JPMorgan has a $40 price target, while the consensus target is $35.91. Shares closed Tuesday at $25.95.
This top mid-cap pick has traded sideways for the better part of this year. Core Laboratories N.V. (NYSE: CLB) provides reservoir description, production enhancement and reservoir management services to the oil and gas industry in the United States, Canada and internationally.
The company reported second-quarter revenue that was up 10.7% year over year but below the analyst consensus forecast. It was slightly lower than previous guidance because of industry shortages of completion crews and equipment caused fewer than expected completions, but an improvement in revenue mix generated higher operating margins.
The $117 JPMorgan price target compares with the consensus target of $114.20. Shares closed Tuesday at $92.83.
This small cap company may be attractive to more aggressive accounts. MRC Global Inc. (NYSE: MRC) is an industrial distributor of pipe, valves and fittings and related products and services to the energy industry in the United States, Canada and internationally.
The company provides such services as product testing, manufacturer assessments, daily deliveries, volume purchasing, inventory and zone store management and warehousing, technical support, training, just-in-time delivery, truck stocking, order consolidation, product tagging and system interfaces customized to customer and supplier specifications for tracking and replenishing inventory, engineering of control packages and valve inspection and repair.
JPMorgan has set its price objective at $23. The posted consensus target is $21.09. Shares closed Tuesday at $17.14.
This smaller cap stock also could be a solid play for aggressive accounts. ProPetro Holding Corp. (NYSE: PUMP) provides hydraulic fracturing and other complementary services to upstream oil and gas companies, which are engaged in the exploration and production of North American unconventional oil and natural gas resources.
The company operates through seven segments focused on hydraulic fracturing, cementing, acidizing, coil tubing, flowback, surface drilling and Permian drilling. Its operations are focused in the Permian Basin, and ProPetro’s fleet consists of 10 hydraulic fracturing units with an aggregate of 420,000 hydraulic horsepower.
The JPMorgan price objective is $20. The consensus price target is $18.77, and shares closed most recently at $11.80.
Five top picks for investors for the rest of 2017. While it may take some time for the sector to heat back up, patient accounts may do very well adding shares at current levels. Any spike in oil above the $50 level may cause some oilfield services shortages, which could bring Wall Street back to the sector fast.