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Analysts Shout: It's Finally Time To Buy Oil Services Stocks!

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Analysts Shout: It's Finally Time To Buy Oil Services Stocks!
  • Guggenheim has upgraded the oil services sector on the belief that oil prices will bounce back starting in 2016.
  • The firm sees an inflow of funds back into the space lifting the entire sector over the next year.
  • Guggenheim believes that the “lower for longer” crude oil price consensus is overly conservative.

In a new report, Guggenheim analyst Michael LaMotte has upgraded the oil services sector to buy and believes that there is plenty of upside for the major players given current market conditions. LaMotte argues that the new "lower for longer" consensus for oil prices is overly conservative.

Multi-Year Upcycle On The Horizon

LaMotte believes that oil services stocks are on the cusp of another multi-year upcycle. Guggenheim is now calling for oil prices to return to $100/bbl by 2018.

Fund Flows To Lift All Names

Guggenheim sees 10 percent upside across the board for oil services stocks in the next year resulting from the group's unique exposure to crude prices.

"We believe the fund flow effect created by the sector’s high crude beta and small S&P weighting will lift all of the stocks in the next 12 months, and that performance beyond the initial ‘rising tide’ will be dictated by the speed with which sub-segments (and companies) return to mid-cycle earnings," LaMotte explained.

‘Tightly-Coiled Spring’

According to LaMotte, crude oil prices have become a tightly-coiled spring. Guggenheim predicts that global crude oil demand will once again surpass supply by Q3 of 2016. While a bounce-back in crude prices may not occur as soon as Guggenheim projects, LaMotte notes that the longer the bounce-back is delayed, the more violent it will be.

Stocks To Buy

Guggenheim maintains Buy ratings on the large cap oil services stocks, including Baker Hughes Incorporated (NYSE: BHI), Halliburton Company (NYSE: HAL), Schlumberger Limited. (NYSE: SLB) and Weatherford International Plc (NYSE: WFT).

In addition, the firm upgraded many names across the board from Neutral to Buy. The upgraded stocks with the most upside according to Guggenheim’s price targets include C&J Energy Services, Ltd. (NYSE: CJS), Seventy Seven Energy Inc (NYSE: SSE), Tesco Corporation (USA) (NASDAQ: TESO) and Tenaris SA (ADR) (NYSE: TS).

Disclosure: the author owns shares of Schlumberger, Halliburton and Weatherford.

Latest Ratings for SLB

DateFirmActionFromTo
Dec 2020HSBCDowngradesHoldReduce
Oct 2020B of A SecuritiesMaintainsNeutral
Oct 2020ScotiaBankMaintainsSector Outperform

View More Analyst Ratings for SLB
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