There's little doubt that there will be a push for alternative types of energy in the future. I expect that the current administration will make a major push for wind and solar technologies. But in spite of this I truly believe that the demand for oil will remain quite strong in the near term. Over the next several decades I think that the demand for "black gold" will remain incredibly strong as populations increase, we increase our driving and other devices must be powered. This is a major reason why I am so optimistic about the long-term potential for Halliburton (NYSE:HAL), which, based in Houston, is in the oilfield services business.
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In a Position to Grow
There are some other things that stand out to me about Halliburton. For one, the company is big and can handle large, hard projects, which I think puts it in a great position to grow going forward. In the future we will have to go farther and dig deeper in our search for oil.
Of course the story isn't all about the future; Halliburton's recent past looks pretty good too. To its credit the company has beaten the pants off of earnings expectations the last four quarters straight. For reference, Schlumberger (NYSE:SLB) has beaten expectations in two of the last four quarters.
While I'm on the subject of earnings the company is scheduled to release its third-quarter numbers in the middle of October. The Street is looking for the company to earn 26 cents a share. My sense is that the number is very doable. But even more important than that, I am hoping the company paints a nice picture of what to expect going forward.
It's also worth noting that in July an insider bought 5,000 shares at $22.98. Although the stock has moved up from there, that is a vote of confidence and something I think the exec would have only done if they were bullish about the company's chances down the road.
The Down Side
The shares have had a large run since the first quarter. Although that's terrific for those fortunate enough to have been along for the ride, I am concerned that there could be a little profit taking. Another thing that bothers me is that it's not overly cheap. Right now the company trades at around 22 times this year's estimate, which is $1.23, and at about 20.5 times the 2010 estimate. In an ideal world I'd like to pick up the shares in the low $20s.
Other Black Gold Plays
When I think of oil, the next thing that typically comes to mind is Exxon Mobil (NYSE:XOM) because of its huge footprint, its foothold in exploration and production, and because I believe that as long as our demand for oil remains insatiable the company has the chance to make big money.
Exxon Mobil is expected to earn $3.98 a share this year and $5.97 per share next, which implies an expected rate of growth of 50%. That is quite large and too hard to ignore. This is not the mention that the company also offers a dividend. The forward yield is about 2.5% by my calculation, which is also intriguing.
When it comes to fuel, I'm also optimistic about BP's (NYSE:BP) chances. The shares trade near their 52-week high of $55.70, which I think may attract some in the momentum camp. Like Exxon, BP is also expected to show strong growth from this year to next.
Bottom Line
I like Halliburton and think that the stock has promise. However, unless I had a long-term horizon I would probably wait for a better entry point. Its lofty price-to-expected earnings multiple is what is keeping me hesitant, although I am bullish for the longer run given the company's vast footprint and relationships within the industry. (To learn more, check out our Oil And Gas Industry Primer.)
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