Money Morning's "unloved" pick of the week is oil services company Halliburton Co. (NYSE: HAL).
An unloved investment is one that's been beaten down - but is actually a great value. Investors then get an amazing entry point into a good long-term investment.
Halliburton was recently singled out by Money Morning Chief Investment Strategist Keith Fitz-Gerald, a seasoned market analyst with 33 years of experience.
Halliburton Co. (NYSE: HAL): About the Company
Halliburton was founded in 1919 in Oklahoma by Erle P. Halliburton, who borrowed a wagon, a team of mules, and a pump to start his oil-well cementing business. Now based in Houston, Texas, Halliburton is the world's second-largest oil field services company. With operations in approximately 80 countries, HAL sells labor services and drilling equipment to the oil and natural gas industries. Halliburton has a market cap of $45.5 billion and employs about 80,000 people. The Chief Executive Officer is David J. Lesar. And yes, former Vice President Dick Cheney once served as Halliburton's CEO.
Halliburton Co. (NYSE: HAL): Why It's Unloved Right Now
HAL stock fell by 35% from July 23, when it hit a 52-week high of $74.33, dropping as low as $48.17 on Oct. 15. It has only slightly recovered since, trading at just under $55.
The main reason for the plunge of Halliburton stock is the dramatic fall in oil prices. The price of oil nosedived from over $100 a barrel at the start of July to below $85 in October. Oil has continued to slide in November down to about $75.
Cheaper oil means less profit for the oil producers and less money to spend on Halliburton's products and services. The glum short-term oil price outlook has scared investors away from the entire sector.
"Many great companies related to energy have gotten slammed in a classic 'guilt by association' move," explained Fitz-Gerald.
And Halliburton is definitely one of them...
Halliburton Co. (NYSE: HAL): Why It's a Stock to Buy
Fitz-Gerald considers Halliburton one of the energy industry's strongest players. And given its strengths, HAL stock won't stay down for long.
Halliburton blew past Wall Street estimates in its Oct. 20 third-quarter earnings report. Profits were up 70% over the same quarter a year ago. Margins were also up. In fact, Halliburton has met or exceeded analyst estimates for the past nine straight quarters.
Halliburton rewarded shareholders with a 20% dividend increase, putting the yield at 1.32%. And with a small payout ratio of 17.9%, HAL can afford future dividend hikes.
Fitz-Gerald also pointed out a very bullish pattern that appeared Nov. 4 on Halliburton's stock chart.
"There's a classic 'hook pattern' forming," he said. "All three elements - falling price, a horizontal base, and a large volume bar - are there, confirming that this is an ideal entry point. A hook is an extended price movement in one direction accompanied by a dramatically higher bar at or near the bottom that signals capitulation. That, in turn, is followed by a period of digestion or accumulation before prices reverse."
And The Wall Street Journal reported yesterday (Thursday) that Halliburton is considering a deal to buy Baker Hughes Inc. (NYSE: BHI). Baker Hughes is the third-largest oil services company in the world. The acquisition would increase Halliburton's economies of scale, helping boost profits.
Finally, oil prices will rebound. Saudi Arabia has engineered the fall in oil prices, but it's a losing strategy. When oil prices go back up, so will HAL stock. Plus, Halliburton is in the middle of a contract renewal phase right now, and is getting higher prices on the new contracts.
How to Invest in Halliburton Co. (NYSE: HAL)
With a one-year price target of $72.19, investors could see a gain of more than 31% if they buy at the current price of just under $55. However, Fitz-Gerald recommends entering a lowball order at $44.50 or less with a protective stop at $33.75.
Update Nov. 17: Today HAL is even more unloved -- and an even better bargain. Halliburton announced on Monday its intent to buy Baker Hughes for $35 billion in cash and stock. Wall Street frowned on the deal, dropping Hal stock by more than 8% in early trading. That's great for investors, because now this excellent stock is more affordable. And it has a better chance of dropping in the short-term to where Fitz-Gerald would like to buy it. In the long run, the Baker Hughes acquisition will drive Halliburton stock higher. The deal will make the company more competitive and boost earnings..
This Energy Stock Is Up 455%: Most of the companies profiting from the U.S. shale oil and gas boom are producers and refiners. But this company, without ever drilling for one drop of oil, has found multiple ways to profit from shale energy. This company still has plenty of room to run...
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.