Going on with the theme about where to invest within the all-so-bullish energy sector, we today recommend Halliburton (NYSE:HAL), a counterpart to our recent article "Schlumberger Poised for Success."
Halliburton is an oilfield-services company that specializes in completion and production along with drilling and evaluation segments. With a market cap of $38 billion, Halliburton is the second-largest oilfield-services company in the world and a dominant player within North America.
The stock has fallen dramatically as of late, taking a hammering because of the falling prices of crude oil. This was a giant mistake. Halliburton has little to do with the price of oil, and does not benefit from huge increases or decreases. Drillers don’t stop drilling just because the price of oil drops from exuberantly expensive to plain old expensive. The production and drilling of oil continues, and that’s where Halliburton operates.
Halliburton is more of a technology play than a play on oil. The stock isn’t subject to the price of oil, or at least it shouldn’t be. Simply put, it is there to help the oil companies drill and improve efficiency. Halliburton is very good at what it does, in recent years its engineering capabilities, innovations and advancement have increased total production 75% and led to a 50% reduction in pumping times. One of its biggest technological advancements, horizontal drilling, is now being implemented by companies all over the world.
In addition to this, recent booms in domestic drilling in North America have led to a surge of new orders and new business generating billions in revenue. Halliburton continues to be on the rise and growing vastly. This year it's on pace to hire 11,000 new employees in America alone! All-around business is booming, and we believe the stock is cheap and a great value. Below are 10 reasons Halliburton is bullish and 10 reasons why you should invest:
10 Reasons Halliburton is Bullish:
- PEG = 0.59. Halliburton holds a PEG ratio of 0.59, making it a bullish indicator as the lower the company's PEG ratio, the more cheaply valued it is. Companies with PEG ratios under 1 are undervalued -- another reason we believe Halliburton is a strong investment.
- P/S = 1.83. Halliburton holds a P/S ratio of 1.83, a good valuation and strong indicator. Value investors look for P/S ratios under 2 as they show great opportunity. Another thing to consider is the fact that low P/S Ratios and rising stock prices tend to be a good basis to invest in growth stocks that have suffered a setback, something that definitely suits Halliburton, as it has been unfairly hit with share prices falling as much as 30% over the past few months as many investors correlating the fall in the price of crude oil and Halliburton’s share price too much. Over the course of the past decade, Halliburton’s P/S ratio has been below-average, making it a good indicator of value.
- ROE = 20.7%. Halliburton’s return on equity averaged out over the past three years is 20.7% (22.49% in 2011), a strong indicator going forward, especially considering the fact that Halliburton plans to grow and further reinvest money within.
- ROA = 12.55%. Equally impressive, Halliburton continues to show effective upper-level management with strong return on both assets and equity.
- Forward P/E = 9.5. Halliburton sports a cheapish forward P/E of 9.5. That represents a discount to rivals like Baker Hughes (NYSE:BHI) (10.1), National Oilwell (NYSE:NOV) (11.5), and Schlumberger (NYSE:SLB) (14.0).
- 92% analyst buy rating. Halliburton is highly regarded among Wall Street analysts, with 95% projecting the stock to outperform the S&P 500 going forward.
- 82.50% held by institutions. Halliburton is held by forty-two hedge funds. HAL represents 4% of T. Boone Pickens BP Capital’s portfolio' Ken Griffin’s Citadel holds more than 2 million shares; Ken Heebner holds a $170 million position; Jim Cramer holds it in his charitable trust.
- $5.9 billion total revenue. Net income for the 2nd quarter of 2011 was reported at $747 million, vs. $483 million in the 1st quarter prior year. Total revenue’s improved to $5.9 billion from $4.4 billion in the same quarter last year. Operating income increased to $1.2 billion from $762 million in the June quarter of 2010 on the improving pricing environment and higher equipment utilization.
- $1.4 billion cash balance. Halliburton currently is cash-flow-positive with a cash balance of $1.4 billion. Like we always say, “Cash is King!”
- Dividend yield = 0.9%. It’s not much, but something is better than nothing, and a near 1% dividend yield is not bad especially considering the fact that Halliburton is such a high-growth, speculative stock to begin with.
Halliburton’s specialized services will continue to grow in the booming Oil & Gas industry. As the economy improves, so will Halliburton's prospects; expect revenue streams to increase too. With strong analyst coverage, upbeat projections, and the fact that HAL is now trading at 12.8 times 2011 earnings, we project Halliburton’s shares to rise to $75 per share, a total yield of 81%. Just like Schlumberger, the oilfield services specialty stocks are ready to explode.
Disclosure: I am long SLB, HAL.