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Cramer: Schlumberger Beats Risky Oil Plays

When looking to invest in oil-sector stocks amid increasing consolidation, “Mad Money” host Jim Cramer said one best-of-breed name is still the best bet: Schlumberger.

With so many oil companies in the mix, Cramer said that there is opportunity to be had by mergers and acquisitions.

But buying stock in companies that might be ripe for a takeover could be a dangerous game.

“To me, while I do expect more consolidation, trying to catch the next takeover is a fool’s errand,” he said. “Buying companies with declining fundamentals is a recipe for losing money.”

This week, National Oilwell Varco purchased Robbins & Meyers, a company specializing in fluids management needed for drilling.

The move sent the buyer’s stock soaring more than 25 percent on the news, and it allowed NOV to raise earnings estimates by as much as 25 to 30 cents per share next year.

The acquisition boosted the stock price of other potential acquisition targets, Gardner Denver and Lufkin .

But Cramer argued that it was far from a sure thing.

“While these targets make sense and seem cheap, as both are down about 20 percent for the year, the fundamentals of these stocks are mixed, to say the least, with each company having to cut its forecast rather dramatically just within the last few weeks,” he said.

Cramer said he also imagined that Weatherford, another oil service company, could be subjected to talk of an acquisition.

“It’s got a solid franchise in Iraq, which is now pumping 3 million barrels of oil a day and has been very undermanaged, to be kind about it,” he said “The stock’s down 11 percent for the year and has also repeatedly failed to live up to expectations plus it’s had its fair share of accounting problems.”

Cramer’s advice: Stay away from the weaker targets and go with a company like Schlumberger.

“With oil looking like it has bottomed, with drilling budgets globally on the increase and with a management team that has been second to none, Schlumberger can have a multiyear rally,” he said.

When this article was published, Cramer’s charitable trust owned shares of Schlumberger.

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