Another escalation in U.S.-Iran conflicts has pushed oil prices higher once again. This environment could help sustain the oil-energy sector’s upward momentum, making bargain opportunities increasingly difficult to find. However, our proprietary stock screener has identified two attractively valued names: large-cap Halliburton HAL and mid-cap Patterson-UTI PTEN.
Oil Sector’s Rally to Continue?
The oil-energy space has seen a strong rally of 20.7% year to date, outperforming the Zacks S&P 500 composite’s increase of 10.7%. Geopolitical conflicts in the Middle East have remained an important driver of oil prices, providing continued support to energy stocks.
With the conflicts between the United States and Iran escalating further, West Texas Intermediate (“WTI”) oil is once again hovering around the $80-per-barrel mark, according to data from Oilprice.com. The U.S. Energy Information Administration (“EIA”) estimates the WTI spot price to average $76.26 per barrel this year, a level that should remain supportive of upstream operations, as many producers have considerably lower breakeven costs.
Amid these constructive backdrops, the rally in the oil-energy sector is likely to continue.
2 Undervalued Energy Stocks to Bet on: HAL, PTEN
Halliburton is a leading oilfield service player providing technologies, products and services to the exploration and production companies across the entire well life cycle. The current oil prices, which are much higher than the shut-in and break-even prices, are likely to aid upstream activities, which are expected to have a positive impact on demand for Halliburton’s services encompassing Completion and Production & Drilling and Evaluation. The large-cap oilfield service company, currently carrying a Zacks Rank #2 (Buy), is thus well-positioned to sustain its upward momentum after skyrocketing 64.6% over the past year.
Even after the rally, HAL is undervalued, with a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 8.40x, which is below the broader industry average of 8.85x.
Patterson-UTI is also expected to continue gaining on the prevailing crude-price scenario. This is because demand for the company’s drilling and completion services will likely remain robust, as the supportive commodity-price backdrop is expected to continue bolstering exploration and production operations. In other words, with increased exploration and production activities, upstream players will hire more drilling and completion services that will, in turn, boost the bottom line of PTEN. Thus, the stock is likely to have more room to run, even after surging 53.6% over the past year.
Despite the momentum-driven run-up, the #2 Ranked mid-cap stock remains undervalued, with a trailing 12-month enterprise value-to-EBITDA (EV/EBITDA) of 5.08x, below the broader industry average of 11.80x. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Halliburton Company (HAL): Free Stock Analysis Report
Patterson-UTI Energy, Inc. (PTEN): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).