Here’s a fun fact. At the bottom of the 2015-16 oil crash, when WTI crude hit $27 per barrel, Schlumberger (NYSE:SLB) stock bottomed at $65 per share. Now crude is sinking again, but is still at $56, or double where it was at the nadir of the previous crash.
SLB stock, by contrast, is at $48. That’s a 25% discount to its previous low.
Has Schlumberger’s business position gotten that much worse? No, it hasn’t. It remains the world’s leading oilfield services company, with roughly 100,000 employees working in more than 85 countries. It also has stayed solidly profitable and continues to pay its dividend despite the rough times for the oil industry in recent years.
Value investing pioneer Benjamin Graham put it well in his classic book The Intelligent Investor. There, he suggested that during a crash in a sector, the prudent patient investor could simply buy the industry’s leader, assuming it had a reasonable balance sheet and hold on for the inevitable recovery when the sector became hot again.
We don’t know when oil will bounce back. We do know that Schlumberger will still be in business when it does. In fact, the longer the sector downturn goes on, the more SLB stock may benefit as its weaker peers go bankrupt and it can buy up their assets and hire their employees on the cheap.
In any case, SLB stock is one of the more appealing stocks to buy, given that it’s at a 25% discount to the worst of its 2016 levels, even with oil way up from then. |
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