Home Trading ETFs OIH: Deeply Oversold, And Likely Going A Lot Higher From Here – VanEck Vectors Oil Services ETF (NYSEARCA:OIH)

OIH: Deeply Oversold, And Likely Going A Lot Higher From Here – VanEck Vectors Oil Services ETF (NYSEARCA:OIH)

by TradingETFs.com
OIH: Deeply Oversold, And Likely Going A Lot Higher From Here - VanEck Vectors Oil Services ETF (NYSEARCA:OIH)


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Deeply Oversold, And Likely Going Higher from Here

VanEck Vectors Oil Services ETF (OIH) is trading around multi-decade lows and appears to be extremely oversold right now. This ETF only has 25 holdings, with the top 10 making up about 75% of the weight, and the top 2, making up roughly 35% of total weight.

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The top two holdings are Schlumberger (SLB) and Halliburton (HAL), with SLB at around 20.5%, and HAL at 14.2% of total ETF weight. Since these two companies make up more than one-third of the ETF’s weight, and other holdings typically follow the leaders, we’ll focus on analyzing HAL and SLB in this article.

In general, OIH, SLB, HAL, and other oil services names are trading at multi-decade, or multi-year lows, and likely have a lot more upside potential than downside risk unless oil collapses below $50. Moreover, the technical image suggests that oil, OIH, and oil services names, in general, are deeply oversold here, are likely to stabilize, rebound, and go higher from here.

Halliburton: A Closer Look

Halliburton is a dominant, market-leading oil services firm now trading at just 10 times forward consensus EPS projections. This is quite cheap, especially if oil remains above $50 or goes higher. Furthermore, HAL now offers a very attractive 3.4% dividend.

Source: Yahoo Finance

Additionally, HAL is expected to grow EPS by over 53% next year, and increase revenues by nearly 10%.

The stock also appears extremely undervalued relative to analysts’ estimates. Aside from mostly strong buy ratings, the stock’s 12-month price target ranges from $34 to $50, with a consensus PT of $39.

Right now, the stock is trading at just $21, so shares would need to rise by 61% just to get to analysts’ lower end targets. In addition, shares would need to surge by 86% to get to consensus 1-year targets and would have to skyrocket by nearly 140% to get to higher end figures.

HAL: 1-Year Chart

Source: StockCharts.com

The technical image also looks ridiculously oversold. In fact, we are well below 2016’s lows, and HAL is about as oversold as it has been over the last 5 years. The technical image suggests a sharp rebound is very likely from these deeply oversold technical levels.

Schlumberger: Also, Extremely Oversold

Schlumberger is also quite cheap, trading at just 15 times projected forward EPS, especially given that SLB has extremely high earnings potential. Higher end EPS estimates point to $3.16, which would put shares at just around 10 times forward EPS projections if the company can achieve higher end EPS estimates.

Source: Yahoo Finance

In addition, consensus EPS estimates point to EPS growth of over 40% next year, as well as a revenue growth rate of nearly 10%. Also, SLB offers a dividend of about 5.77% here, which suggests downside risk is likely limited from current levels.

Analysts also believe SLB should be trading much higher. Most analysts have a strong buy rating on the stock, and shares are way below 12-month estimates. For instance, analysts have a 12-month price target range from $45 to $75, with a consensus figure of $52.

Right now, SLB is around $35, implying shares would need to rise by about 30% just to get to lower-end estimates. Moreover, shares would need to pop by nearly 50% to get to analysts’ consensus figures and would have to surge by about 114% to attain higher-end estimates.

SLB: 1-Year Chart

Much like HAL, SLB is trading well below 2016 lows and is at a price not seen since the early 2000s. Moreover, SLB appears to be in the process of making a solid double bottom here.

OIH: 1-Year Chart

OIH is also deeply oversold as the RSI is below 30, and the ETF appears to be making a double bottom around these heavily oversold levels.

Oil in General

Naturally, the price of OIH, HAL, SLB, and oil services names, in general, is heavily dependent on the price of oil. With WTIC trading at around $50, with an RSI at 22, oil is deeply oversold here as well.

WTIC 1-Year Chart

Why Are These Names So Cheap?

It’s basically the risk factor. A key element is for oil to remain above $50 and preferably to rebound and go higher from here, and a great deal depends on the overall global economy. If the global economy continues to slow substantially, oil could go lower, and OIH, SLB, HAL, and other oil-related names could potentially go lower from here as well.

However, oil is still in a well-defined up-trend which began in early 2016. Yet, the underlying names are well below prices we saw when oil was at its lowest, around $26 in 2016.

Source: YCharts

This phenomenon also makes the underlying names appear quite cheap, and the downside is likely limited, unless oil prices begin to collapse below $50.

The Bottom Line

OIH, SLB, HAL, and other oil services names are extremely oversold here and appear to be making bottoming patterns from a technical standpoint. Moreover, top holdings in the ETF, SLB, and HAL are trading at very cheap multiples and offer exceedingly attractive dividends.

Unless crude oil melts down below $50, oil services names are likely to stabilize and make a substantial rebound from current extremely oversold levels. Analysts seem to agree that HAL, SLB, and other oil services names are considerably underpriced here.

I want to own OIH, SLB, HAL, and other oil services stocks at these prices so long as crude oil remains above $50 and/or goes higher. This seems likely, as international and political tensions ease, the Fed lowers rates, and global growth concerns get alleviated going forward.

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Disclosure: I am/we are long OIH, SLB, AND OTHER OIL SERVICES RELATED NAMES. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article expresses solely my opinions, is produced for informational purposes only and is not a recommendation to buy or sell any securities. Investing comes with risk to loss of principal. Please consider consulting a professional before putting any capital at risk.



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