The last redoubt for oil bulls, and the first place to look for a snapback rally once the current oil war ends, is Schlumberger (NYSE:SLB).
Schlumberger actually opened for trade on Monday at a higher price than it had at the start of the year. That record will be smashed Monday, as the stock opens at around $84.30. But all that means is that the company is becoming a bargain.
Schlumberger's financials are a picture of prosperous stability. For the September quarter, it earned $1.949 billion and $1.49 per share on revenues of $12.659 billion. Compare this to the $1.715 billion in earnings, $1.29 per share and revenue of $11.651 billion a year earlier. The company beat its own earnings expectations for the third quarter despite falling prices.
At its current price, Schlumberger is trading at a P/E of about 16 and a yield of 1.86%. Expect that multiple to decline, and that yield to increase, as the month wears on. The company will doubtless experience some difficulties as those who pay its bills hit the wall, but it has cash reserves of $6.8 billion to cushion any blow.
While oilmen like the late George Mitchell and Chesapeake Energy's former CEO, Aubrey McClendon, get a lot of the public credit for the fracking boom, all they really did was deploy technology Schlumberger had been developing over decades.
Today's technique for finding oil, and bringing it to market, were all developed by Schlumberger. And throughout the recent fracking boom, the company was busy buying companies like GeoServices and ThruBit to expand its portfolio. Most of the deals it has done in the last five years are either purchases of private companies or divisions of other companies, and only get reported in the industry trade press.
All of the industry's trends serve to benefit Schlumberger further. The pending merger of Halliburton (NYSE:HAL) and Baker Hughes (BHI) will force the sale of assets that will strengthen Schlumberger, and will weaken the balance sheet of its primary competitor, Halliburton. The fall in oil prices demands that producers buy new technology to increase supply. Power in the industry is moving toward Schlumberger technology and away from oil producers.
You can probably profit in Schlumberger shares at their current price, but you'll be buying ahead of a fall, as the oil industry collapse hits every player, even the strongest. Still, once the smoke clears, the stock that will head highest, fastest will be this one.
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