The pounding the energy sector has taken since early October, over 30%, is enough to make many investors run and hide. Many of top energy companies have been beaten back to levels they were at this time last year. Investors with a little dry powder and a longer time horizon now have the opportunity to take positions in some of the top companies at much cheaper valuations.
In a new research report, the energy team at RBC makes some end-of-the-year changes to the firm’s well-respected Global Energy Best Ideas list. We screened the list for the top U.S.-based picks in both energy and oilfield services and found five top companies that look like outstanding choices for investors looking to add now for potential gains in 2019. All are rated Outperform at RBC.
General Electric announced recently it will be divesting a large part of its interests in Baker Hughes, a GE Company (NYSE: BHGE), and this could provide a new life to the shares. Baker Hughes is a provider of integrated oilfield products, services and digital solutions. The company’s products and services include upstream, midstream, downstream, industrial solutions and digital transformation.
The company’s upstream, which includes evaluation, drilling, completions and production. Midstream enables the power and compression efficiency for liquefied natural gas and pipeline and storage. Downstream builds reliability and safety into process operations that include refining and petrochemical and fertilizer solutions.
Baker Hughes industrial solutions offers power generation to advanced control systems and sensing technology that power industrial facilities. Digital transformation integrates data on an open platform with security and scale. The digital transformation enables field services with real-time insights.
Shareholders are paid a 3.38% dividend. The RBC price target for the shares is $40, and the Wall Street consensus target is lower at $35.80. The stock closed Tuesday’s trading at $21.29 a share.
Helmerich & Payne
This large-cap sector leader is perhaps a safer and more conservative play. Helmerich & Payne Inc. (NYSE: HP) is the largest U.S. land driller and provides onshore drilling services primarily in the United States. It also offers land rigs internationally, as well as offshore platform rigs in the Gulf of Mexico.
The company provides drilling rigs, equipment, personnel and camps on a contract basis to explore for and develop oil and gas from onshore areas and fixed platforms, tension-leg platforms, and spars in offshore areas. Its contract drilling business operates through three reportable segments: U.S. Land, Offshore and International Land.
The analysts cite the big price drop over the past two months as unwarranted, and they also note the company has the best U.S. land drilling rigs, the most upgradeable rigs, the best capital structure and a 47-year history of dividend increases.
Helmerich & Payne investors are paid a very big 4.73% dividend. RBC has a strong $90 price target, while the posted consensus price objective is much lower at $72.08. The stock closed at $60 on Tuesday.