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It's an energy-intensive world, and even though the U.S. and global recessions have led to real declines in aggregate energy usage, don't look for that trend to continue. Further, as Saudi Arabia reminds us, barring a breakthrough technology, fossil fuels will remain a major energy source for at least the next thirty to fifty years. In other words, the reign of oil has merely paused, not ended, which is why it's appropriate to review Schlumberger (NYSE: SLB).
Schlumberger is one of the leaders in oilfield services. In general, analysts believe SLB is well-positioned to capitalize on the bullish, secular trend of the development of oil and natural gas fields/zones that require greater amounts of technology deployment.
That development work entered a downcycle in late 2008/early 2009 when the price of oil collapsed after the leveraging bubble burst. Further, there is substantial risk in owning Schlumberger: a delay in the global economy's recovery would keep oil prices at sluggish levels ($35-50 per barrel), and that would weigh on SLB's results. The First Call F2009/F2010 EPS estimates for SLB are $2.59 / $2.47.
That said, Schlumberger's demonstrated business model and reasonable P/E of 13 are too inviting to pass up.
Stock Analysis: Schlumberger is a moderate-risk stock. Consider buying a 25% position in SLB now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your SLB position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $27.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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