We recently published a list of The 10 Best Oilfield Services Stocks to Buy NowIn this article, we will look at how Halliburton Company (NYSE: HAL) compares to other stocks in the oilfield services sector.

Brent crude oil prices have fallen from over USD 90/bbl in April to below USD 80 per barrel, reflecting lower demand for oil, growing global inventories and a decline in geopolitical risks. Prices were highly volatile in the first half of the year due to rising geopolitical tensions, production cuts by OPEC+ members and signs of strengthening global industrial production.

Global oil demand is slowing, reflecting difficulties in the global economic landscape, particularly the slowdown in China’s economic growth. Given the slowdown, oil prices settling above the $70 per barrel mark are likely to be a boon for the oilfield services sector, which is heavily dependent on oil and gas prices.

The oilfield and services sector consists of companies that help companies explore for and produce oil and gas. Therefore, the best oilfield services stocks are those of companies that help produce, repair, and maintain wells and drilling equipment. The companies win billion-dollar contracts from integrated energy companies as well as independent and national oil and gas companies.

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When crude oil prices rise and remain well above the $70 per barrel mark, upstream companies increase spending on exploration and drilling activities, which benefits oilfield service providers. Higher spending leads to higher revenues and profit margins.

With oil prices holding above the $70 per barrel mark, the oilfield services sector is expected to grow at a compound annual growth rate of 5.83% to reach $119 billion by 2024. The robust growth is due to rising expectations for increased development of gas reserves and advanced technology.

While oil prices averaged $77 per barrel in 2023, persistent high inflation of over 4% was one of the reasons why oilfield services remained under pressure, as upstream companies refrained from undertaking major exploration and development projects.

As a result, the oilfield services sector as a whole delivered a year-over-year return of -11.8%, lagging the S&P 500, which gained about 26%. The sector lost about 3.87% for the year, lagging the S&P 500, which gained about 17%.

The story continues

While the underperformance is a concern, it provides an ideal entry point for buying the best oilfield services stocks, as most of them appear to be trading at a discounted value.

The global upstream industry is expected to keep its hydrocarbon investments at around $580 billion in 2024, up 11% year-on-year. Likewise, the expected investments should be a reason for investors to keep a close eye on the best oilfield services stocks that are now trading at discounted valuations.

The second quarter saw increasing momentum in various parts of the oilfield services sector as the U.S. economy slowed.

“The four major oilfield services companies are well positioned to benefit from the multi-year global upswing in E&P spending and rising demand for energy services and technology,” wrote Evercore analyst James West. “Strong earnings growth and margin improvement will be driven by international and offshore markets.”

Our methodology

We used Yahoo Finance’s screener to compile the list of the best oilfield services stocks to buy now. We looked for the most significant oil and gas equipment and services companies and those with significant upside potential based on average analyst price targets. Once we had a consolidated list, we selected and ranked the stocks based on their upside potential.

We also mentioned the number of hedge funds that bought those stocks during the same reporting period. Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (Further details can be found here).

An oil rig in the desert with an orange sunset in the background.

Halliburton Company (NYSE:HAL)

Hedge fund holdings: 41

Share price potential as of December 8, 2024: 43.10%

Halliburton Company (NYSE:HAL) is an oil and gas equipment services company that provides production enhancement services, including stimulation and sand control. Its Drilling and Evaluation business provides drilling fluid systems, performance additives, completion fluids and solids control.

All major oil companies are customers of Halliburton Company (NYSE:HAL), including Gazprom JSC, NC Gazprom Neft JSC, LUKOIL JSC, NC Rosneft JSC, Exxon Mobil Corporation (NYSE:XOM), Shell Plc (NYSE:SHEL), TotalEnergies SE (NYSE:TTE) and others.

Although the stock is down about 13% for the year, it offers significant upside potential given strong demand for its services and oil prices above the $70 per barrel mark. With demand for high-value oilfield services and equipment expected to be tight, Halliburton Company (NYSE:HAL) should be able to grow average revenue per rig.

The stock has risen about 75% over the past three years, outperforming the S&P 500’s 45% gain. It’s also one of the best oilfield services stocks right now, as Halliburton Company (NYSE:HAL) rewards investors with a 2.18% dividend yield and trades at a price-to-earnings ratio of 9.

Wall Street analysts rate Halliburton Company (NYSE:HAL) as a Buy with a price target of $44.36, implying an upside potential of 43.10%. At the end of the second quarter, 41 hedge funds tracked by Insider Monkey held shares in the company.

Here is what Carillon Eagle Mid Cap Growth Fund said about Halliburton Company (NYSE:HAL) in its fourth quarter 2023 investor letter:

Total HAL 9th place in our list of the best oilfield services stocks to buy. While we recognize HAL’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you are looking for an AI stock that is more promising than HAL but trades at less than 5 times its earnings, read our report on the cheapest AI stock.

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Disclosure: None. This article was originally published on Insider Monkey.