US GDP growth is surging to a 40-year high of 6.5%, and economists tracked by Bloomberg estimate the rate could double by June, before settling in the mid-single digits through next year, observes Adam Johnson, editor of Bullseye Brief.

It’s wonderful news and explains why commodities like copper, oil and lumber are rising significantly. Curiously, oil stocks have only just begun to re-inflate.

I want to add an oil field services company to the portfolio — and it’s leveraged to higher oil demand without being exposed to the risk of exploration. The one I have in mind ranks #1 in N. America, and it’s as much about technology as oil. I like that combination, especially now.

Halliburton Co. (HAL) is the largest oil field services company in N. America, providing investors significant leverage to normalized oil demand associated with economic rebound.

While US consumption is still 2 million barrels per day below pre-Covid levels, recent inventory drawdowns suggest producers will need to find new sources of supply, and this is very good news for Halliburton.

Exploration companies rely on Halliburton’s technical expertise and specialized equipment to bring hydrocarbons to the surface. The company does not bear the risks associated with exploring for oil and gas, but instead collects considerable fees as an embedded services provider — another positive for investors.

The stock has rebounded from earlier lows, but still trades at a 65% discount to it’s pre-Covid high. I believe this gap will narrow as oil demand rises, reflecting a potential doubling of current earnings estimates into 2022.

Halliburton’s impressive Q1 earnings beat estimates for a thirteenth consecutive quarter, and CEO Miller expressed “confidence” in the results as a harbinger of additional upside ahead.

The company managed to make money even during last year’s virtual cessation of new drilling, and sequential growth is anticipated over the next several quarters.

On a year-over year basis, Halliburton is guiding analysts to 50% eps growth annually through at least next year. By 2023, Halliburton is expected to approach its pre-Covid earnings high of $1.90/share, implying a forward P/E ratio of 11.4x — well below its pre-Covid average of 22x.

I like owning HAL $20-23, which coincides with the 50-day moving average and the lower range of a clear upward channel (chart below).

channel

My target of $38 comes from multiplying 2023 consensus estimates of $1.80 by a P/E multiple of 22x (Halliburton’s median valuation pre-Covid in 2018-19), discounted to the present at 2% ($1.80 x 22) * 0.97 = $38. This target makes me the Street high analyst by a wide margin, since the target range among the 28 analysts is $14-29.

Current skepticism could become a catalyst for the stock in coming months. As analysts raise estimates and targets, institutional investors will buy. This may take a while, but I believe HAL will trade appreciably higher as oil demand returns and Wall Street plays catch-up.

Subscribe to Bullseye Brief here…