4 Oil Service Stocks With Huge Upside Despite Oil Meltdown

Source: Thinkstock While it seems counterintuitive that oil service stocks could have huge upside when the price of oil is the lowest in over two years, the fact of the matter is the cost of onshore fracking and horizontal drilling has dropped dramatically over the past four years. Although the rig count will actually drop next year, the demand for fracking and fracking sand is actually expected to increase. A new report from Jefferies not only highlights top stocks to buy, it shows some huge price targets on the top companies in the firm’s universe.

The Jefferies analysts expect that West Texas Intermediate (WTI) should average $84 across 2015, and they focus attention on four top stocks that have incredible upside for investors.

Baker Hughes Inc. (NYSE: BHI) reported very solid numbers for the quarter but some analysts were disappointed by margin guidance. Earnings from its Latin American operations improved significantly from $8 million in the first nine months in 2013 to $172 million in the first nine months in 2014. Its North American operations also improved. The demand for innovative drilling technology has increased dramatically. These were the main drivers for its improved 2014 performance. The Middle East and Asia Pacific segment’s 21% higher profit also helped boost growth.

Baker Hughes investors are paid a 1.3% dividend. The Jefferies price target for the oil services giant is $74, and the consensus target is $72.21. Shares closed trading Wednesday at $52.67, so hitting the Jefferies target would be a gain of over a 40%.

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C&J Energy Services Inc. (NYSE: CJES) offered a very impressive earnings beat on Wednesday, and the Jefferies analysts have pointed out that revenue has impressed now for three consecutive quarters, while both increased work volume and sand per well has increased costs. They are confident after management meetings, that C&J is on top of the supply chain challenges and should continue to show visible margin traction in upcoming quarterly reports. The company is an independent provider of premium hydraulic fracturing, coiled tubing, wireline, pumpdown and other complementary oilfield services with a focus on complex, technically demanding well completions.

The Jefferies price target is $39. The consensus target is $31.56. The stock closed Wednesday at $18.97, up almost 6%. Trading to the gigantic Jefferies target would be over a 100% gain for shareholders.

Halliburton Co. (NYSE: HAL) is down almost 28% since July and now leads its oil services competition with North American margins of 18.2%. The company has plans to increase its allocation for operations in North America, where the environment is still very robust, despite the dip in oil pricing. Halliburton recently announced a $1 billion investment to develop huge potential oil fields in Ecuador and has entered into a long-time deal with Petroamazonas, an Ecuador-based company involved in the exploration and development of the country’s oil reserves. With oil being absolutely demolished recently, this top oil service company is a great stock to buy on sale.

Halliburton shareholders are paid a 1% dividend. The Jefferies price target for this sector leader is $74, and the consensus target is at $73.63. The stock closed Wednesday at $54.42. Trading to the Jefferies target would be almost a 40% gain.

U.S. Silica Holdings Inc. (NYSE: SLCA) is a small-cap name that investors may find very interesting, as demand for fracking sand is expected to grow this year. The company’s fastest growing segment is oil and gas proppants, materials meant to keep a fracking fracture open. Selling sand to frackers is what that segment does, and the stock is up sharply over the past year. The company expects demand for commercial silica in the hydraulic fracturing market to increase by 8% annually through 2016, and that is in-line with the Jefferies estimates.

The company pays shareholders a 1% dividend. Jefferies has a huge $74 price target, while the consensus stands at $73.92. Shares closed at $47.05. Hitting the target would be a monster 50% gain.

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While the Jefferies targets are tempting, investors will need to show patience, as oil could remain volatile, with more downside pressure still to come. That said, these top stocks to buy are core energy holdings for long-term growth portfolios.