Recent Strength In Oil Services Sector Could Lift Baker Hughes

| About: Baker Hughes, (BHGE)
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I have been active lately in picking up or adding to my positions in the oil services sector. The space has been hit hard in the second quarter on concerns about the impact of falling energy prices on exploration budgets and worries about rising cost inputs. However, the sector looks like it has bottomed and has started to head up over the last week (See Chart). Some of my core positions are Halliburton (NYSE:HAL), Weatherford (NYSE:WFT) and I most recently added to beaten down Baker Hughes (BHI) last week as I believe the company is ready to move up after a tough few months in the market.

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6 reasons BHI is a solid bargain at just $41 a share:

  1. The stock is selling at the bottom of its five year valuation range based on P/E, P/S, P/CF and P/B.
  2. The market seems to be discounting the company's growth potential. The stock has a cheap five year projected PEG (.63) and analysts expect 8% to 11% revenue growth for both FY2012 and FY2013.
  3. The company is selling for just 5% over stated book value. It also has an A rated balance sheet.
  4. BHI is selling at just over 9 times forward earnings, significantly below its five year average (16.1).
  5. The stock is significantly below the median analysts' price target of $53 which is the consensus of the 23 analysts that follow the stock. S&P has a "Buy" rating and $56 price target on Baker Hughes.
  6. After falling sharply in March, the stock looks like it has successfully gone through a bottoming process and is ready to move up (see chart).

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Disclosure: I am long BHI, HAL, WFT.