Mensajepor manzana » Mié Feb 04, 2015 3:01 pm
Citigroup: ‘Peak Pessimism’ at Hand for Oil Services Stocks
Crude oil continues to slip, but one analyst says now could be time for longer-term investors to bulk up on oil services stocks.
U.S. crude futures plunged below the $50 a barrel marker on Monday, extending the slide another 2.3% to $48.91 early on Tuesday, according to FactSet. Oil services companies such as Schlumberger (SLB) and Halliburton (HAL), which aid production and exploration companies, have been hit particularly hard. The Market Vectors Oil Services ETF (OIH) is down 27% over the past three months compared with a 14% decline in the Energy Select Sector SPDR Fund (XLE), which owns majors such as Exxon Mobil (XOM) and Chevron (CVX).
Citigroup analyst Scott Gruber takes the somewhat contrarian position that falling capital expenditure forecasts and looming bankruptcies by some exploration companies could portend that the industry’s shakeout is closer at hand. Meanwhile, he says that oil services stocks tend to stop falling as oil reaches “unsustainably low” levels; furthermore, investors appear to be through much of their selling since valuations have fallen so low:
“We believe sentiment is unlikely to deteriorate much further as it appears to be consensus that crude prices have further downside into the spring and Oil Service estimates need to take another step lower. At the same time, many of our discussions indicate that investors believe downside for the stocks is limited, likely reflecting the achievement of trough valuation multiples. The combination of remaining negative headwinds that impede action but limited downside based on valuation is, in our view, a mark that sentiment is near the trough. We recommend that medium to long term investors take advantage and build positions. Short term investors should wait…” for a clearer signal, he writes.