Sinking oilfield services stocks allow us to be buyers again on the cheap

Published Wed, Apr 20 202212:02 PM EDTUpdated Wed, Apr 20 202212:11 PM EDT

We're buying 250 shares of Halliburton (HAL) at roughly $39.56 each. Following Wednesday's trade, the portfolio will own 2,000 shares of HAL, increasing its weighting in the portfolio to about 2.40% from 2.11%. As discussed in our "Morning Meeting" video , we view the weakness in shares of Halliburton as an opportunity to make our position bigger ahead of what we believe will be a multiyear upcycle for the oilfield services industry. Shares of this North American-focused company pulled back Wednesday for a few reasons. First, we think there's some hot money coming out of HAL following the stock's strong year-to-date performance. So far in 2022, the stock has gained more than 70%. Second, we think an analyst call is controlling the stock. Despite several price target bumps to the mid-$40s to as high as $52 from Piper Sandler in reaction to the quarter, analysts at Stephens took the other side of the trade. Stephens downgraded its HAL rating to equal weight, citing the stock's impressive run back to its highest levels since 2018 and expectations "that are now appropriately calibrated" for this year and next. Because HAL was up so much year-to-date coming into the quarter, this downgrade carried more weight than the positive reactions, causing HAL to fall roughly 4% early in Wednesday trading. Third, oilfield services peer Baker Hughes reported Wednesday morning and surprisingly missed earnings-per-share expectations for the quarter. Due to the miss and Baker Hughes' outperformance this year — up nearly 45% in 2022 — BKR shares were pulling back aggressively, weighing on HAL. These companies make equipment and technology that helps oil and natural gas production firms with that extraction of the commodities and the exploration for them. Here's why we think each reason creates an opportunity to buy. While we cannot blame anyone who wants to book a profit in a stock that has been such a winner in a tough and volatile year, we believe the selling in Halliburton is too short-sighted given the sales growth and margin expansion that will occur over the next few years. Equipment supply is tight already, meaning Halliburton will have plenty of power to put through price increases. Regarding the downgrade, we think the Stephens has it wrong because it's the pivot to short-cycle capital strategies that will make this upcycle unlike those of the past few years. Lastly, we want to buy into the BKR-related weakness because Halliburton just reported Tuesday, and its results were better than those from Baker Hughes. That's not a surprise to us. Halliburton is the best of breed name in the group — and it's quite possible, that it is taking share. Halliburton is run by a management team that's as good as it gets, starting at the top with Chairman and CEO Jeff Miller, who's been with the company for 25 years. When HAL shares stumble in response to the shortfall of a lesser company, we think that is a good time to scoop up more shares. (Jim Cramer's Charitable Trust is long HAL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A Halliburton oil well fielder works on a well head at a fracking rig site January 27, 2016 near Stillwater, Oklahoma.

J. Pat Carter | Getty Images

More In CNBC Investing Club Newsletter

Investing Club: The week in review, the week ahead — Aug. 19, 2022

Zev Fima

History shows the Bed Bath & Beyond fiasco will spark even more Nasdaq selling

Jim Cramer

What this week’s retail earnings tell us about consumers and our stocks that depend on them

Paulina Likos

Sinking oilfield services stocks allow us to be buyers again on the cheap

More In CNBC Investing Club Newsletter

News Tips

Advertise With Us