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Energy Service Stocks Expected to Rally Through Year-End, Goldman Sachs Predicts
Performance of Energy Service Stocks
According to a note to clients by Goldman Sachs analysts on Tuesday, a selection of energy service stocks are anticipated to rally through the end of the year. This is attributed to increasing profit margins, which are leading to quarter-over-quarter earnings growth and higher price-to-earnings multiples.
As a whole, service stocks have significantly outperformed the Energy Select Sector SPDR ETF this year, Goldman Sachs noted. For instance, the VanEck Oil Services ETF has seen a 30.3% increase over the past three months, which is triple the gain of the broader Energy Select ETF, as per FactSet data.
Self-Help Drivers in the Energy Sector
Companies that are in a position to improve their performance independently, rather than relying on the commodity market, are likely to be the most beneficial for investors, according to Goldman analysts led by Ati Modak.
"One of the key themes that we highlighted throughout 2023 is the importance of idiosyncratic self-help drivers. We believe there are a number of attractive buy-rated stocks that can drive sequential growth, margin expansion, and multiple expansion even in a range-bound commodity environment with Brent near $80/bbl," they stated.
Goldman's Top Picks in the Energy Sector
Among the energy service stocks that Goldman Sachs rates as a buy are Weatherford, Atlas Energy, Baker Hughes, SLB, Halliburton, MasTec, and Expro Group Holdings.
Weatherford's profit margins and free cash flow can expand from self-help initiatives. Atlas Energy's 42-mile-long Dune Express electric conveyor system offers strong growth potential, even in a declining spot sand price environment. Baker Hughes is experiencing growing order backlogs due to liquid natural gas and new energy commitments, while also improving its free cash flow conversion and transparency. SLB is benefiting from increased spending on oil and gas exploration and production in the Middle East.
In conclusion, Goldman Sachs' analysis suggests that certain energy service stocks are poised for growth through the end of the year, presenting potential investment opportunities.
Implications for New Businesses Amidst Predicted Energy Service Stocks Rally
The expected rally of energy service stocks through the end of the year, as predicted by Goldman Sachs, presents both challenges and opportunities for new businesses in the sector.
The increasing profit margins and higher price-to-earnings multiples forecasted for these stocks could make it more difficult for new businesses to compete in the market. They may need to strategize effectively to ensure they can offer competitive returns to investors while maintaining sustainable operations.
On the other hand, the anticipated rally could also create opportunities for new businesses. The outperformance of service stocks over the Energy Select Sector SPDR ETF suggests a strong market for these stocks. New businesses could leverage this trend to attract investment and fuel their growth.
The emphasis on self-help drivers in the energy sector underscores the importance of businesses being able to improve their performance independently. New businesses that can demonstrate their ability to drive growth, expand margins, and increase multiples, even in a range-bound commodity environment, could stand out to investors.
In conclusion, while the predicted rally of energy service stocks presents challenges, it also offers opportunities for new businesses that can navigate the market dynamics and demonstrate their potential for growth.
Article First Published at: https://www.cnbc.com/2023/08/09/seven-oil-service-stocks-are-buys-through-year-end-goldman-sachs-says.html
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