Can Schlumberger Withstand This Rigorous Yet Simple Test?

As I was researching a few oil companies and trying to stay on top of all the happenings within the industry, I suddenly realized that I was getting caught in the noise of the market. Oil prices are declining on a daily basis, news flashing are everywhere about a catastrophic hit on energy stocks. It’s tough not to listen to all that madness. I completely forgot about rule no1: ” Don’t pay attention to the Market“. Easier said than done my friends!

 

While reflecting on my profound moment, I decided to stick with the basics and go back to the old school approach. That’s right, I am talking about Benjamin Graham & Warren Buffet school of thought. Therefore I simply took a stand of a Defensive investor’s* approach developed by Graham and consulted my stock software.

*Think conservative, extremely cautious and “play it safe” type of investing.

Here are my findings on “Schlumberger(NYSE:SLB)” using 7 key criteria ( Defensive Investor) approach: Continue reading

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Santa’s Bag Of Goodies

When talking about energy companies and considering plunging oil prices, this title is very true. Oil prices hit a 5-1/2 year low this week, decreasing almost 50% since this summer. As you might be aware many different things caused this to happen and because of that santa’s bag is full of hurting oil companies that are trading very low right now. Everything started back in November with OPEC’s decision to keep the current production ceiling in an effort to undercut growing US Shale Production. A few weeks later, IEA (International Energy Agency) lowered 2015 global demand forecast by about 200,000 barrels per day (bpd). Let’s not forget that the US dollar rose to a 5 year high and Russia is nearing a recession point while Europe is struggling to correct their balance sheet.

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Let’s talk Energy

The energy sector seems to be out of favor lately and I’d like to elaborate a bit on this topic because there has been some real noise around this issue. Let’s focus specifically on the oil industry in this post. As of today ( 10/29/14) crude oil trades for $81.71 a barrel and we are looking at a decrease of about 25 percent since June of 2014. Believe it or not we just hit a four-year low, and according to many analysts the future outlook doesn’t look much better. Or does it?

IEA (International Energy Agency) lowered their forecast on global oil demand and added that current oil prices would remain under pressure due to strong supply levels. That is precisely what is happening right now- too much oil and not enough demand to balance it out. Some blame Saudi Arabia and their unwillingness to cut the oil supply levels like they usually do in situations like this. Even though blaming one single country might sound childish, I see their point. Saudi Arabia is still a key player in the world’s oil market and they didn’t react to this supply/demand unbalance like everyone was expecting them to. So what? We can also easily put the blame on the situation in Russia or blame it on the weak economy in Europe. Let’s not point fingers but step back and take a look at the big picture.

People tend to over-react as usual and create a buzz that stirs up the crowds. That of course impacts the market and the next thing you know the outlook for that industry, oil in this case, looks terrible. When this happens I am always curious to find out what is happening behind the scenes and block-off the noise that can be quite a distraction from the ‘real’ story. Also I am an optimist most of the time, and I always try to look at the brighter side of things. Therefore ‘Over their Skies’ is how I would describe the current buzz created around the oil industry. These two world’s biggest oil service suppliers don’t break a sweat when it comes to the oil price decrease and they call it “fear of short-term oversupply” that won’t change their future outlook for the industry.

If oil prices continue to dip into $70 range and stay there for a few months, it will be a sign that we have to rethink our supply spending strategy. Until then, let’s buckle up and ride this one out to see what Q4 brings and I bet the prices will stabilize in early 2015. This is your chance to consider companies like SLB and NOV because their stock is basically for sale right now. Once demand picks up so will their revenue and these companies have plenty of room for growth.

Note: I elaborated more on bullish outlook for SLB in this article