01/16/2015 7:00 am EST
Our top speculative idea for the coming year is a firm that is perhaps the best-of-breed oil & gas equipment and services company, explains Kelley Wright, editor of Investment Quality Trends.
Be that as it may, Schlumberger Ltd. (SLB) has not been immune to the drop in crude oil prices and the carnage seen across the industry.
Although I expect crude oil to drop below $50 per barrel before all is said and done, SLB is unmatched in size and heft, which means the company should be able to survive quite nicely in this oil market trough and take off in the next oil market rally.
And, while there may be a glut of oil currently, this will get worked off and you can bet the ranch there will be a surge in demand at some point in the not-too-distant future.
According to our work, SLB offers good historically repetitive value at a dividend yield of 2.30%. Based on the current dividend of $1.60 per share, that equates to a per share stock price of $70.
Trading currently around $87 per share, the stock is at a premium for what we would pay for it.
My thought is that the stock will break $80 before it finds a bottom and any price at $77 or lower offers a great long-term opportunity.
With a potential upside to Overvalue at $200 per share—which is a 0.80% yield based on the current dividend—shares purchased within 10% of Undervalue should payoff quite handsomely over the next several years.
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