In "This Stock Is Quietly Outperforming Its Peers," I discussed the outperformance Baker Hughes (BHI) enjoyed over Schlumberger (SLB), Halliburton (HAL), the Market Vectors Oil Services ETF (OIH), and the S&P 500 (SPY) since the stock reached its April 10, 2012 low. I also noted the following in my previous article:
Fundamental analysis is only half the battle. One of the thorny aspects of investing is that even after performing the greatest due diligence in the world and thinking a stock is an absolute steal at a certain price, a stock, for a variety of reasons, can continue to sell off in a major way. Even for long-term investors, a major sell-off soon after purchasing a stock can drastically reduce annual returns, even over a very long period of time. Another facet of investing that can confuse investors is when a stock bottoms in price at times the fundamentals couldn't look worse or when a stock tops out in price at times the fundamentals couldn't look better.
Sometimes relative performance among peers or even relative to broader market indices can provide clues about which stocks investors should take a closer look at. The continued outperformance of Baker Hughes' stock seems to be sending the message that the known unknowns and the known knowns have been priced into the stock. Therefore, going forward, broader market sell-offs and any unknown unknowns that might appear should be the drivers of downside performance in Baker Hughes, rather than the company- and industry-specific concerns that plagued the stock over the prior year or so.
Since my aforementioned article was published early in the day on May 16, Baker Hughes has continued to outperform Schlumberger, Halliburton, OIH, and the S&P 500. From the May 15 close, Schlumberger is down 5.05%, Halliburton is down 3.47%, OIH is down 5.30%, and the S&P 500 is down 3.94%. Baker Hughes, on the other hand, is down just 0.29% and is still trading 3.65% above its April bottom. Schlumberger and Halliburton are down 6.38% and 6.64% respectively from those April 10 lows, and OIH and the S&P 500 are also much lower than their April lows, down 10.37% and 5.83% respectively. In other words, Baker Hughes has been outperforming in a major way since the April bottoms in all the previously mentioned securities and in the S&P 500.
If you think there will be continued selling pressure in stocks, Baker Hughes' stock is one to consider hiding out in. You might not make as much money on a rally. Since its April low, we haven't had an opportunity to judge how it will perform on the upside if accompanied by a more sustained market-wide rally. However, if you are a long-only equity investor and are looking for places to hide for the time being, Baker Hughes is one stock to put on your radar screen. Barring any unknown unknowns, I would expect this stock to, at a minimum, trade in line with the major market averages and its peers should further market-wide weakness continue to press stocks lower.
Disclosure: I am long BHI.