Schlumberger Limited Giving The Bears Something On Which They Can Feast In The Short Run
Schlumberger was in strong rally mode from the end of 2013 until the most recent peak at the end of June. It appears to be in correction mode now. How far will it fall?
Schlumberger Limited (NYSE: SLB) shares were one of the leading performers in the broader market from December of last year until late July of 2014, rising nearly 40 percent.
That performance was primarily attributable to the rise in crude oil prices from $92 on December 31 to more than $104 at the end of June. Since then, however, both crude oil and the stock of Schlumberger have been under pressure. The question now becomes, “How far will both crude oil and Schlumberger fall?”
The Bullish View Of Schlumberger…
The bulls see in Schlumberger a leading oil services firm that should continue to benefit from a general rise in oil prices over time. Additionally, the company sports a price-to-sales of 3.0 (well below the “cheap” threshold at 5.0), an enterprise value that comes in less than the market capitalization and a PE to growth ratio of right around 1 (so the company is fairly valued by that metric).
The balance sheet for Schlumberger is a plus as well, with a current ratio of more than 2.0 and a strong cash position of $6.7 billion with more coming in every day. Finally, the bulls see a price chart for Schlumberger shares that points to higher prices over the long run.
The Bearish View Of Schlumberger…
The bears would point out Schlumberger's clear tie to the direction of oil prices on a short-term basis. Clearly, once oil peaked at the end of June, the stock peaked as well. Additionally, the bears note that the company is, as noted above, fairly valued at best and slightly expensive at worst.
The price-to-book ratio actually comes in slightly above 3.0, which is the threshold in many analysts' eyes for a fairly valued company. The bears' main ammunition for their negative stance comes in the form of the price charts of both Schlumberger stock as well as with crude oil prices.
Crude prices, they contend, are destined for a date with the mid-$80s. If that occurs, they claim that there is nothing for Schlumberger to do but go lower in sympathy with crude.
Who Has It Right?
The answer to that question may end up being “both." Technicians are calling for a move in Schlumberger stock down to around $100 from $108 currently.
From there, however, they note that there is a good chance that the stock starts to rally once again and that the rally could take Schlumberger's price all the way back up to the recent high at $118 and change if not even higher.
If you had to pick an oil service company to own, you could do worse than going with Schlumberger. However, timing your entry on the long side is the key here.
Bulls would do well to wait for a drop down to “par” at $100 before initiating any new longs. Adventurous bears can enter at current levels in anticipation of that move to $100. They need to be sure to honor stops on any close above $107.50.
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