Summary
- The stock touched decade lows in the $17 range recently, and we believe that, at this level, the worst is behind the stock.
- Recent performance suggests that the company is holding up well with $50 oil.
- Yielding 4%, the stock is further attractive thanks to the company's commitment to slashing costs.
- Under $20, we still see this as an amazing long-term entry point.
- Looking for a helping hand in the market? Members of BAD BEAT Investing get exclusive ideas and guidance to navigate any climate. Get started today »
Barring a broader market breakdown, we believe the worst is over for Halliburton (HAL). We are always on the lookout for names that are simply beaten down too far. Our investing philosophy has us seek out both short-term gains and those setting up a potential long-term holding in a quality equity. The stock touched decade lows in the $17 range recently, and we believe that, at this level, the worst is behind the stock. Under $20, we still see this as an amazing long-term entry point. We believe oil is seeking equilibrium after around the low $50 range or higher. At this level for oil, we believe performance of the name and the future outlook suggest the name is highly attractive here. Let us discuss.
The company just reported its Q3 earnings, and we were are surprised at the response from the Street to a top-line miss and a bottom line that matched estimates. You see, the stock rallied, not because of its performance (which was decent overall) but because of the outlook. As far as the stock itself is concerned, it has been impacted greatly by the movement in crude oil pricing. The stock is attractive for a rebound as stellar demand continues, as well as a commitment to cost cutting by the firm. Make no mistake, we think that the decline in HAL shares to give us this opportunity to get long.
Oil prices have held the $51-52 support level all year, with a few sizable bounces after rallying to start the year. Most recently, we saw a spike following the Saudi attacks, but those gains are gone:
Source: Oil Price Charts Via OilPrice.com
We are operating under the ongoing assumption on this buy call that the $50 oil level will hold. If it does not, HAL could return to the $17 level. Our inclination is toward the upside, as we see oil moving trading around its equilibrium point, which we see as the $60 range. As such, we see short-term upside for HAL from the oil price standpoint alone. Operationally, the company is the healthiest it has been in five years, thanks to extreme fiscal discipline in recent years and with oil prices having rebounded.
