Time to Step into Oil Service Names?

Posted Jul 12th 2010 9:00AM by Jason Raznick
Filed under: Exxon Mobil (XOM), Halliburton (HAL), Schlumberger Limited (SLB), Chevron Corp (CVX), BP p.l.c. ADS (BP), Anadarko Petroleum (APC), Transocean Ltd. (RIG)

Oil-related stocks have been significantly beaten down in the wake of the BP (BP) oil spill in the Gulf of Mexico. The market could be suggesting, however, that now may be the time to jump back into this sector.

Frankly, the energy complex as a whole looks like the most compelling segment of the stock market right now, although it does come with significant risk as many traders and investors have already been burned trying to pick a bottom over the last few months.

In order to mitigate risk in this sector, investors could consider putting together their own oil-related ETF: Determine the amount of capital that you want to commit to this sector and then divide it up between a number of companies in order to reduce company specific risk. This is similar to buying an ETF such as the Oil Service HOLDRs ETF (OIH), but allows you to pick the specific component companies.

Interesting oil service stocks to look at include Halliburton (HAL), Schlumberger (SLB), and Transocean (RIG). Risk reversals are clearly taking place in these names, and with valuations so depressed, the upside still remains compelling.

Halliburton, for example, has lost 10% on the three-month chart, but has surged over 25% in the last month alone. The same phenomenon can be witnessed in Transocean, which has fallen 40% over the last three months, but gained over 20% in the last month.

Another name that looks very interesting is Anadarko Petroleum (APC), an exploration and production company that owns a 25% non-operating stake in the BP well. A shift in sentiment is clearly taking place in APC. On the three-month chart, the stock has lost almost 40%, but has climbed 30% over the last month. It also may be advisable to add a large integrated name to any collection of energy stocks. Two of the most interesting at current levels are Exxon Mobil (XOM) and Chevron (CVX). Both offer attractive dividend yields, and are trading at compelling valuations.

Jason Raznick is the business editor of Benzinga.com.

Tags: ETF, ETFs, featured, oil stocks, trading ideas