Oil prices have certainly been under some pressure over the past several weeks. Crude has now dropped a record 12 straight days and over 25% since making a recent high of $76.22 on October 3. While the carnage in oil prices has been historic, the move in oil service stocks has been even more extreme. This makes oil service stocks a more optimal, and safer, way to play for a pop in crude.
Investors and traders alike who think that oil prices are due for a bounce should consider oil service stocks as a very viable alternative to crude futures. The combination of multi-year lows, attractive yields, deeply oversold technicals and heavily discounted correlations makes this group a comparative value.
Here are three oil service stocks that will benefit greatly from a rally in oil.
Schlumberger (NYSE: SLB) of the largest U.S oil services stock by market cap. It carries a very robust 4.22% dividend yield and is now trading at the lowest price since 2009.
Shares are deeply oversold with a 14-day RSI now below 18. The three previous times SLB was this oversold marked a significant short term low in the stock. Probability favors a counter trend rally in SLB so now is a good time for investors to buy in.
Halliburton (NYSE:HAL) is the second largest of the U.S. oil service stocks behind Schlumberger. The dividend yield is a solid 2.23% with a payout ratio of just 36.2%.
Oil service stocks like HAL are usually highly correlated to oil prices, but are now trading at a massive discount to oil. Look for that correlation to revert to the mean and for HAL to be a relative outperformer in the coming months.
Van Eck Oil Services ETF (OIH)
Van Eck Oil Services ETF ( NYSE:OIH) comprise a basket of oil service stocks. OIH sports a very respectable 3.62% dividend yield and as an ETF, OIH also has the risk-reducing benefit of diversification.
Shares are deeply oversold as well with a 14 day RSI approaching 20-very extreme for an ETF. Prior instances when OIH was this oversold proved to be a very opportune time to take a long position. This very likely could be the case once again.
Tim Biggam may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his strategies can go to https://marketfy.com/item/options-and-volatility.
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