Baker Hughes: Strong Buy After A 30% Sell-Off

| About: Baker Hughes (BHI)

The markets have had an impressive rally so far in October. Bargains are not as easy to find as they were just a few weeks ago. One area that is still down substantially from its summer highs is the oil services sector. Baker Hughes is a fast growing company in that sector that is worth accumulating.

Business description from Yahoo Finance (see here):

Baker Hughes Incorporated supplies wellbore related products, and technology services and systems for drilling, formation evaluation, completion and production, and reservoir technology and consulting to the oil and natural gas industry worldwide. It also provides products and services to the downstream refining, and process and pipeline industries.

8 reasons Baker Hughes is a buy at $54 a share:

  1. Baker Hughes is experiencing a period of rapid earnings growth. It earned $2.22 a share in 2010, it is expected to earn $4.36 this year and consensus projections are for $5.75 a share in 2012.
  2. It has beat earnings the last four quarters. The average beat over consensus during that time period has been 17%.
  3. Even after the rally in the markets in October, Baker Hughes is still off 30% from its summer highs.
  4. BHI has long term technical support at just under $50 (see chart below, click to enlarge image):

    Click to enlarge

  5. Baker Hughes has an A rated balance sheet and an increasing rig count.
  6. Its five year projected PEG is just .4, which is a 65% discount to its five year average.
  7. Despite the summer stock drop, consensus estimates for 2011 and 2012 have risen in the last three months.
  8. The stock price is significantly under analysts’ price targets. Credit Suisse has a $93 price target on BHI, S&P is at $95 and the median analysts’ price target is $85.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BHI over the next 72 hours.