Why One Analyst Says These 2 Oil Services Stocks Are The Only Ones To Buy Now

This analyst says investors need to “see through the fog” and seize the opportunity for these 2 oil services stocks.

Oil stocks have had a difficult few years.

Energy was one of the worst performing sectors of 2019, and oil services stocks in particular have been hit hard in the last few years falling 72% between 2014 and 2019.

But things could be turning around for the sector. 

Goldman Sachs analyst Brian Singer said in December that oil would be headed for a rebound in 2020. And now Bernstein’s Nicholas Green argued in a note from Tuesday that investors need to “see through the fog” as “there is a lot of opportunity” in the sector, particularly oil services stocks.

“Oil Services may be only 5% of Oil & Gas market cap, but it sees about 20% of the traded value,” Green wrote in a note. “Poor quality of information means the sector is an active manager’s dream: lots of idiosyncratic alpha, huge dispersions in performance, and huge option value on recovery. See through the fog, and there is a lot of opportunity.”

Oil services stocks are facing a “double-dip recession” as oil and gas producers continue to cut spending, resulting in what Green says could be another 20% reduction in activity by 2021.

Beyond that, the alarm around climate change means there isn’t “pent-up demand” for big oil projects.

But all that aside, Green says there are opportunities to be had.

The analyst cautions that the big names in the space—like Schlumberger (NYSE: SLB), Halliburton (NYSE: HAL), and Baker Hughes (NYSE: BKR)—aren’t the place to be now as he says their valuations are about 25% too high and their managements haven’t provided for a clear path forward.

Instead, Green likes Tenaris (NYSE: TS) and SBM Offshore (OTC: SBFFF).

Green said in the note that SBM Offshore “could be the safest oil-service company to own in the group,” and added that “a little should go in every generalist portfolio.”

As for Tenaris, Green says the stock has been unfairly punished based on its exposure to U.S. shale and is thus 20% undervalued. Green rates the stock an Outperform.