Comebacks are always in style; here we highlight five stocks that struggled last year but are likely to rebound strongly as their industries pick up steam, explains Scott Chan, editor of The Complete Investor.
Oil service companies, in particular, have lagged. They depend on the explorers and producers to hire them. And the explorers and producers, which cut back sharply on operations as oil prices dropped, still seem gun shy about committing to new drilling projects.
But that should change as it becomes increasingly clear that higher oil prices won’t retreat. Signs include falling U.S. crude inventories, OPEC’s decision to continue to limit output, and geopolitical tensions in the Middle East.
Once producers’ sentiment reaches an inflection point, producers could rush to invest in growth for fear of missing out on the next up cycle. Demand for oil services could surge.
That makes Schlumberger (SLB
Helix Energy Solutions Group (HLX
Because Helix is not a contracted offshore driller, it avoids the huge costs of maintaining a rig fleet. Its well-intervention services and undersea robots help deepwater operators improve safety and cut costs.
The offshore oil sector remains weak, and while the worst may be over, recovery may still be a few quarters away. Helix, although a quality company, is a more speculative bet than Schlumberger.
But its smaller revenue base means a relatively small improvement in business could bump growth into double digits. The longer oil prices remain elevated, the more likely that will happen as demand rises for the company’s services.
Core Laboratories (CLB
Our two other comeback candidates are both gold stocks. In 2017, gold rallied from below $1,150 an ounce in January to above $1,300 by yearend in a somewhat jagged uptrend. Most gold stocks, though, were down.
For several reasons, we expect gold prices to continue to strengthen, possibly by a lot. The rise in oil and other commodities will spill over into gold, which typically rallies whenever commodities markets are strong.
Meanwhile, a slowdown in gold exploration during the years of depressed gold prices suggests global production will be flat or will even decline.
Even if gold just made a push toward $1,400, it would provide a welcome boost to both Barrick Gold (ABX
NovaGold’s share price suffered an extra blow from investor concern that to raise money to develop Donlin, the company might need to sell additional equity, diluting the shares.
But NovaGold, which currently has no debt, could borrow instead or sell some of its ownership in Donlin. And higher gold prices would make the economics of Donlin even more appealing, giving NovaGold more options to raise money on favorable terms.
We fully expect NovaGold will find investors willing to finance development of Donlin – possibly entities with Chinese ties. Barrick’s CEO John Thornton has deep roots in China. Both Barrick and NovaGold are good bounce-back candidates.
For investors more comfortable with betting on the industry rather than on individual stocks, VanEck Vectors Oil Services ETF (OIH
Scott Chan is editor of The Complete Investor.
About MoneyShow.com: Founded in 1981, MoneyShow is a privately held financial media company headquartered in Sarasota, Florida. As a global network of investing and trading education, MoneyShow presents an extensive agenda of live and online events that attract over 75,000 investors, traders and financial advisors around the world.