Seeking Alpha
Profile| Send Message| ()  

Baker Hughes International (BHI) is a leading provider of maintenance and drilling services to the oil and gas industry. The stock has been in decline due to market weakness and also due to the sharp drop in oil prices. This creates a new potential buying opportunity for investors who can look past the short-term doom and gloom to see the longer-term potential this company offers. Here are 4 reasons investors should consider Baker Hughes shares now, for what could be significant future gains:

  1. Barclays Capital made a list of the best stocks to buy in 2012, and the analysts included Baker Hughes, citing a potential gain of around 70%. Barclays believes the company will experience higher profit margins in the future, especially from international projects. Even though the stock has been weak, the fundamentals for this company remain strong and with the shares at levels not seen in many months, it could be an ideal time to buy for the significant potential that Barclays has detailed.
  2. Baker Hughes shares appear undervalued when considering a number of factors. The stock is trading for almost half of the 52-week high and now trades within 10% of the 52-week low. It also trades for just a small premium to book value, which is $36.92 per share. The company has a solid balance sheet and the price to earnings ratio is around 10 times earnings, which is below the current market average of nearly 13 times.
  3. This company is in the oil sector and it trades with many oil stocks, but since it does not have significant, direct exposure to oil prices like some companies do, investors might be undervaluing the growth and profit potential. For example, a major integrated oil company that produces oil will surely see lower profits with lower oil prices, but since Baker Hughes primarily provides services to companies, it is not likely to be directly impacted by lower oil prices. Because of this, a case can be made that investors have sent this stock well below fair value.
  4. The company reported 18% revenue growth in the first quarter of 2012, which came in at $5.36 billion, compared to $4.53 billion for the first quarter of 2011. Net income for the first quarter 2012, was $379 million, or 86 cents per share. The company also announced new drilling technologies and projects in a number of emerging market countries like China, Vietnam, Russia and others.

In recent days, even as oil and the stock market has seen significant declines, shares of Baker Hughes have remained solidly above $40. This could be another sign that the stock has put in a bottom and is now at a point where the upside greatly outweighs the downside.

Key Data Points For Baker Hughes From Yahoo Finance:
Current Share Price: $41.73
52-Week Range: $39.40 to $81
Dividend: 60 cents per share, which yields 1.4%
2012 Earnings Estimate: $3.65 per share
2013 Earnings Estimate: $4.59 per share
P/E Ratio: about 10 times earnings

Data is sourced from Yahoo Finance. No guarantees or representations are made.

Disclaimer: Please consult a financial advisor before making investments.

Source: Oil Stock Bargain: 4 Reasons To Buy Baker Hughes For 70% Upside