Baker Hughes Company (BKR-Q)

Recently reported a mixed quarter: soft revenues and modest earnings beat. But guidance was weak: about 8-9% growth overseas but low-single-digit declines in the U.S. Shares have sunk 5%. This has been the worst oil driller for a long time.

You have to be careful. They issued a one-time special dividend to shareholders, so the $47 share price drop to $33 is artificial. When the deal first happened post the special dividend, the cost basis was something like $33-$35, so you might not be down as much as you think. He really likes this company here. The reports coming from Caterpillar/McDonald’s is that China is growing quite strong, which is going to help the demand side of the oil equation, and the combined entity of GE/Baker Hughes is now the 2^nd largest in terms of revenue from the oil services business. For the long-term, this is a very compelling a holding.

GE-N is merging their oil and gas operations with them as their largest shareholder. As a Canadian investor, you get representation in the oil service area. They are more geographically dispersed than the Canadian industry.

(Top Pick Nov 29/16, Up 2.69%) Just before the OPEC production cuts were announced. They are forming a partnership with GE oil services. They will be second in size to Schlumberger after that deal. If it does not get consummated over the summer they will get a huge breakup fee from GE-N. It does not matter if the deal goes through or not, just if the price of oil collapses. Otherwise it is undervalued.

The oil service business has had its ups and downs, and was really reliant on drilling activity. Most of his exposure is in the Canadian market. He prefers Halliburton (HAL-N).

Fairly recently acquired by General Electric (GE-N) to form an oil/gas partnership using the GE oil and gas service business. If you are a Baker Hughes shareholder, you get a one-time $17.50 dividend. This company has a really strong balance sheet. Presuming the deal is approved mid-2017, the new partnership will be the 2^nd largest oil/gas service company in the world on a revenue basis. Thinks energy is starting to form a bottom. As long as oil prices don’t collapse, the combined entity will be very strong. If the deal doesn’t go through, this company will receive a break up fee, of about $1.3 billion. Dividend yield of 1.12%. (Analysts’ price target is $62.17.)

(Market Call Minute.) They are doing a deal with General Electric (GE-N) which is exciting. As an alternative, he would suggest Schlumberger (SLB-N).

He tends to screen stocks out after a merger starts. There will be a ticker for the new entity. He thinks Baker Hughes is overvalued. GE-N is potentially buying them at the bottom.

Being acquired by Halliburton (HAL-N). The oil service sector is not really a place you want to be in. If you own this, you might just as well accept the Halliburton offer as it is a larger, more liquid stock with a wider geographical range. Not an area that he likes.

It is too early to be buying the oil services companies at this point. When oil prices stabilize this one will make a lot of sense.

The whole industry in North America is coming through a big revolution. People are expecting stability in margins but she is playing through Canadian companies (e.g. Canyon Services). Some pretty good momentum and reasonable valuation so you should do well in BHI.

Large US service company, a play on US energy revolution, providing fracking services. 15 times earnings seems high but you can argue that it is fine. There is a potential they could make back some of the market share they lost.

Great company and one of the industry leaders. This is a Buy if you are looking out 2-3 years.