Buy This, Not That: Which Oil Services Company Will Win With “Drill, Baby, Drill”?

Shah Gilani|January 22, 2025

With a new sheriff in town championing “drill, baby, drill,” oil services companies are poised for growth.

But not all players are created equal…

I’ve analyzed the two biggest names in the business – and one clearly has more upside potential.

Plus, there’s a third player you might expect me to recommend… but I’ll tell you why to avoid it.

Tune in for your latest Buy This, Not That episode.

Click on the thumbnail to dive in.

P.S. Send me your tickers! In future videos, I’ll rate them as Buys or Not. The email is mailbag@manwardpress.com.

TRANSCRIPT

Hey everyone. Shah Gilani here with your weekly BTNT, as in Buy This, Not That.

Since there’s a new sheriff in town with the motto “drill, baby, drill,” we’re going to talk about oil services companies and examine two of the biggest players in the industry.

Not just the best-known names – one is probably the most recognized, Schlumberger (SLB).

The other isn’t Halliburton (HAL). Schlumberger’s and Halliburton’s stock charts look nearly identical.

But Halliburton isn’t performing nearly as well as Schlumberger. Looking at various metrics, particularly the year-over-year revenue growth for trailing 12 months, Halliburton is down 2%, and earnings growth year-over-year trailing 12 months is down about 20%.

I’m going to eliminate Halliburton right away.

It’s going to be Schlumberger, also known as ‘Slob’ in the business, versus Baker Hughes (BKR). While Baker Hughes may not be as well-known as Halliburton, it’s a better-run company and actually larger.

Schlumberger leads the industry, with Baker Hughes second. Yes, Halliburton comes in third.

Looking at Schlumberger first – this is a $61 billion market cap company, the big player in the business. We’re looking at really strong revenue here, about $36 billion-plus annually. Profit margin is nearly 12.5%, with operating margins close to 18%. Absolutely fantastic. Makes a lot of money. Return on equity is just shy of 22%. The dividends aren’t really worth mentioning – you’re not going to buy it for the dividend. Quarterly revenue growth year-over-year is up 10.2%, with quarterly earnings growth year-over-year up 5.6%.

Now, Baker Hughes has it beat in terms of stock price action.

Let me show you what I mean. Baker Hughes just made a new high on the 17th – we’ll call it intraday $47.47. That’s both the intraday high and the 52-week high.

That’s a pretty impressive chart. It’s performed really well. You can see moving averages solidly above everything and heading higher.

Oh, it’s already reached the moon – now will it get to the stars?

Here’s the story with Baker Hughes.

Not as large as Schlumberger – $46 billion market cap versus Schlumberger’s $61 billion. Revenue is $27.3 billion versus Schlumberger’s much larger $36 billion. Profit margin for Baker Hughes is 8.2% versus Schlumberger’s 12.44%. Operating margin is 13.46% versus Schlumberger’s 18%. So far, Schlumberger has the edge in nearly every category. Return on equity is 14.29% for Baker Hughes, while Schlumberger’s is just shy of 22%. Again, Schlumberger leads. Quarterly revenue growth year-over-year is 4% at Baker Hughes versus 10.2% at Schlumberger.

Here’s where the wheat gets separated from the chaff, at least between these two…

Quarterly earnings growth at Baker Hughes year-over-year is 48% – that’s huge. Compare that to Schlumberger’s quarterly revenue growth year-over-year of 5.6%. This is what you see in the performance – quarterly earnings growth has been spectacular. That’s why Baker Hughes is up 47.6% in the last 52 weeks. Remember, the S&P 500 was up about 23%. So Baker Hughes significantly outperforms the S&P 500.

Comparing Baker Hughes versus Schlumberger, all metrics except quarterly earnings growth favor Schlumberger. For that reason, Schlumberger is my pick.

Why? Look at Schlumberger’s chart – it’s nowhere near its highs from back in September-October 2023.

Can it return to those highs? Yes, it can. It’s performing well, just approaching its 200-day moving average. I think it will break through and continue climbing.

If we get back to the previous highs, we’re looking at about a 40% gain.

So, despite Baker Hughes’ strong earnings growth, I recommend buying Schlumberger over Baker Hughes because I believe there’s more upside potential in Schlumberger than in Baker Hughes.

That’s it for today. See you next week. Cheers.