Top Picks 2020: Schlumberger (SLB)

01/09/2020 5:00 am EST


Jason Clark

Contributing Editor, The Prudent Speculator

Jason Clark — contributing editor to The Prudent Speculator — selected Citigroup (C) as a top pick for 2019; although he still views the stock as attractively valued, given the 57%+ gain, he is now highlighting a leading oil services firm as a risk-oriented idea for 2020.

Schlumberger (SLB) is the world’s largest provider of services and equipment used in drilling, evaluation, completion, production and maintenance of oil and natural gas wells.

Not only have the last few years been a struggle for SLB’s stock, and its competitors, the average energy name hasn’t gone anywhere for the last decade.

There is no doubt that the U.S. rise in supplying low cost energy to the globe has impacted the space overall, but we believe things look brighter moving forward as costs have been right-sized, operations have been fine-tuned and much stronger cash flow generation is on the horizon.

While business in North America will still face headwinds, international markets, led by Africa, Asia and Latin America, have been picking up.

Having the largest global oil services platform, a dominant international franchise, the potential benefits from recent acquisitions and the most balanced exposures of the diversified service providers, we like that management has positioned SLB not only to survive turbulence in the oil patch but to thrive from a sustained upturn in the historically cyclical industry.

We think its global income diversification is a positive and believe that Schlumberger is a clear technology leader.

Additionally, we continue to believe that global energy demand will increase over the long term, especially in emerging economies, as the world’s population is expected to eclipse 9 billion between 2040 and 2050 (with much of the population growth coming from emerging markets).

With the price of crude having rallied over the last four months, we can’t help but like SLB and its 5.0% dividend yield.

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