We recently published a list of The 10 Best Oilfield Services Stocks to Buy NowIn this article, we will look at how Newpark Resources Inc (NYSE:NR) compares to the other stocks in the Oilfield Services sector.
Brent crude oil prices have fallen from over USD 90/bbl in April to below USD 80 per barrel, reflecting lower demand for oil, growing global inventories and a decline in geopolitical risks. Prices were highly volatile in the first half of the year due to rising geopolitical tensions, production cuts by OPEC+ members and signs of strengthening global industrial production.
Global oil demand is slowing, reflecting difficulties in the global economic landscape, particularly the slowdown in China’s economic growth. Given the slowdown, oil prices settling above the $70 per barrel mark are likely to be a boon for the oilfield services sector, which is heavily dependent on oil and gas prices.
The oilfield and services sector consists of companies that help companies explore for and produce oil and gas. Therefore, the best oilfield services stocks are those of companies that help produce, repair, and maintain wells and drilling equipment. The companies win billion-dollar contracts from integrated energy companies as well as independent and national oil and gas companies.
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When crude oil prices rise and remain well above the $70 per barrel mark, upstream companies increase spending on exploration and drilling activities, which benefits oilfield service providers. Higher spending leads to higher revenues and profit margins.
With oil prices holding above the $70 per barrel mark, the oilfield services sector is expected to grow at a compound annual growth rate of 5.83% to reach $119 billion by 2024. The robust growth is due to rising expectations for increased development of gas reserves and advanced technology.
While oil prices averaged $77 per barrel in 2023, persistent high inflation of over 4% was one of the reasons why oilfield services remained under pressure, as upstream companies refrained from undertaking major exploration and development projects.
As a result, the oilfield services sector as a whole delivered a year-over-year return of -11.8%, lagging the S&P 500, which gained about 26%. The sector lost about 3.87% for the year, lagging the S&P 500, which gained about 17%.
While the underperformance is a concern, it provides an ideal entry point for buying the best oilfield services stocks, as most of them appear to be trading at a discounted value.
The global upstream industry is expected to keep its hydrocarbon investments at around $580 billion in 2024, up 11% year-on-year. Likewise, the expected investments should be a reason for investors to keep a close eye on the best oilfield services stocks that are now trading at discounted valuations.
The second quarter saw increasing momentum in various parts of the oilfield services sector as the U.S. economy slowed.
“The four major oilfield services companies are well positioned to benefit from the multi-year global upswing in E&P spending and rising demand for energy services and technology,” wrote Evercore analyst James West. “Strong earnings growth and margin improvement will be driven by international and offshore markets.”
Our methodology
We used Yahoo Finance’s screener to compile the list of the best oilfield services stocks to buy now. We looked for the most significant oil and gas equipment and services companies and those with significant upside potential based on average analyst price targets. Once we had a consolidated list, we selected and ranked the stocks based on their upside potential.
We also mentioned the number of hedge funds that bought those stocks during the same reporting period. Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (Further details can be found here).
A large oil and gas drilling rig in operation, surrounded by a vast desert landscape.
Newpark Resources Inc (NYSE:NR)
Hedge fund holdings: 24
Share price potential as of December 8, 2024: 54.36%
Newpark Resources Inc (NYSE:NR) is one of the major players in the oilfield and services sector, focused on providing product rentals and services to the oil and natural gas exploration and production industry. Its Fluid Systems business provides customers with well completion and related engineering services.
Newpark Resources Inc (NYSE:NR) delivered solid results for the second quarter. Revenue in the Industrial Solutions segment increased organically by 40% to total $179 million. Net operating income doubled to $13.3 million from $5.9 million a year ago.
Industrial Solutions’ revenue growth was driven by fleet expansion and a continued shift by customers from traditional wood-based mats to our DURA-BASE composite matting system. Product sales reached a record high in the second quarter and rental income increased 9% compared to the same period last year.
The investment strategy remains focused on investing cash in the rental vehicle fleet segment, capturing gains through repurchasing its own shares, and capitalizing on growth opportunities in both the current and related jobsite access markets. The Company generated free cash flow of $22 million in the second quarter and saw net debt decrease to 0.3xs by June 30, 2024.
The stock is currently rated as a Buy with an average price target of $11.50, representing an upside potential of 54.36% from current levels.
The number of hedge funds holding shares in Newpark Resources Inc (NYSE:NR) was 24 out of 920 at the end of the second quarter, according to Insider Monkey.
Total NR 4th place in our list of the best oilfield services stocks to buy. While we recognize NR’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than NR but trades at less than 5 times its earnings, read our report on the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.
