Today the energy sector made a big comeback after yesterday’s dramatic selloff.
Notable rebounds include Anadarko Petroleum Corp. (APC), Chesapeake Energy Corp. (CHK), Devon Energy Corp. (DVN) and Pioneer Natural Resources Co. (PXD). But today the jewel of the energy sector was Schlumberger (SLB), which rallied over 6% after it provided a long-term profit guidance that beat expectations. This five-day chart illustrates just how powerful today’s move was.
As a refresher, Schlumberger is a global leader in supplying technology, integrated project management and information solutions to oil and gas companies. The company’s three main divisions are 1) Reservoir Characterization, 2) Drilling, and 3) Production. Schlumberger’s operations span more than 85 companies and the biggest growth opportunities are coming from emerging markets in Asia and the Middle East.
Schlumberger just held its 2014 investor conference and it had some exciting things to say about its long-term growth prospects. While the company expects spending on exploration to be “subdued” in FY 2015, the company expects things to really start to heat up in FY 2016. So through the end of FY 2017 Schlumberger expects the global oil markets to be “well-balanced,” and for earnings per share to increase at a compound annual growth rate of 17% to 20%. To put things into perspective, analysts were looking for 15% long-term earnings growth or lower.
In the near-term, investors have the company’s second-quarter earnings report to look forward to. When Schlumberger reports Q2 results after market close on July 17, analysts expect the company to earn $1.35 per share on $11.91 billion in revenue. Compared with the year ago quarter this works out to 17.4% annual earnings growth and 6.5% sales growth. This is above the industry average of 12.7% forecasted earnings growth for the current quarter.
But as I mentioned above, it appears that the best is yet to come. This kind of momentum is exactly what I look for in selecting high-quality energy plays. So if you plug SLB into my Portfolio Grader stock screening tool you’ll see that this is an A-rated Strong Buy.
Of course, for every stock like SLB there are a slew of energy positions that are still too risky to own. To get you started, here are eight oil and gas services companies that you’ll want to avoid in the coming months.
|Ticker||Company||Total Grade||Quantitative Grade||Fundamental Grade|
|CAM||Cameron International Corp.||Sell||D||B|
|CGG||CGG SA||Strong Sell||F||F|
|CLB||Core Laboratories NV||Sell||D||C|
|FTI||FMC Technologies, Inc.||Sell||D||B|
|HLX||Helix Energy Solutions Group Inc.||Sell||F||B|
|OII||Oceaneering International Inc.||Sell||F||B|
|TDW||Tidewater Inc.||Strong Sell||F||C|