CNBC's Jim Cramer on Wednesday reviewed oil service stocks after the sector's major players reported earnings, telling investors why he thinks SLB and Halliburton have room to run.
Cramer said he's optimistic on these stocks after their earnings showed strong international business and efficient rigs. Both stocks have seen gains in the sessions since their reports, with Halliburton up 4.33% by Wednesday's close and SLB up 2.48%
"I think SLB and Halliburton deserve all of this upside and more," Cramer said. "Yes, I think they can keep climbing. Yes, the growth outlook for the oil service industry is better than I thought going into earnings, primarily thanks to increased activity overseas."
In its earnings report last week, SLB's main source of strength proved to be its international business, which the company said had delivered 10 consecutive quarters of double-digit growth. Cramer was also encouraged because SLB raised its dividend by 10%, suggesting management is confident about future success. Although its cash flow was not as strong as that of SLB, Halliburton also reported a strong international business and indicated it's confident about oversees production over the next few years.
But Cramer had been somewhat concerned about increased efficiency. He wondered if these oil service companies would become "victims of their own efficiency," with producers needing to purchase fewer rigs because each one can generate more oil than in the past. But Halliburton's management assuaged Cramer's fears.
"Halliburton explained how they're getting more and more money out of each well, too, so, at worse, it's a wash," he said. "Plus, as they help producers expand and extend the life of individual wells, they make more money and incur fewer costs themselves, leading to improved margins."
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