Harry Domash's Winning Investing

Two Stocks For 2023: #2 Baker Hughes

In my previous posting, I opined that even though most analysts see a rough market ahead, some stocks might still positive returns.

In that posting, I described one of my two candidates to fit that bill, Blue Owl Capital (OWL).

Here, I’ll describe my second candidate, Baker Hughes (BKR), which offers energy exploration and production services to major oil producers.

About Baker Hughes

Baker Hughes's four major operating units include:

1) Oilfield Services includes onshore and offshore exploration, drilling and maintenance services,

2) Oilfield Equipment produces exploration and drilling equipment,

3) Turbomachinery and Process Solutions provides services and equipment for downstream operations including transportation and refining,

4) Digital Solutions provides measurement and control applications not necessarily related to oil and gas drilling.

2022 - Strong Year For Energy

Like most other energy stocks, 2022 was a good year for Baker Hughes. Iincluding dividends, it returned 27% vs. the S&P 500’s 19% loss. The overall energy sector, up over 40%, did even better. But, many analysts expect a market downturn next year, including the Energy sector.

2023 Could Be Even Better

However, in my view, there are several reasons to believe that Baker Hughes’s winning streak could continue. Here are four.

1) Big oil is finally getting the message big time: carbon dioxide emissions must be reduced. Baker Hughes intends to become the leading supplier of carbon reduction equipment and systems. It has already made several acquisitions to help it achieve that goal. For instance Baker recently agreed to acquire the Power Generation division of BRUSH Group, an established equipment manufacturer that specializes in electric power generation and management for the industrial and energy sectors.

2) Baker is expanding its presence in Asia by opening a new oilfield services chemicals manufacturing facility in Singapore, enabling manufacturing optimization and faster delivery of fit-for-purpose chemical solutions.

3) Baker has embarked on a multi-facetted program to increase profit margins and increase cash flow. Consequently, for next year, analysts are forecasting earnings per share (EPS) to total $1.66 per share, up 79% vs. 2022. As I have mentioned many times in this space, share prices track annual EPS closer than any other single factor.

4) Baker Hughes was added to the Nasdaq-100 Index on December 19, thereby increasing demand from ETFs and mutual funds tracking that index.

Dividends Too!

On the dividend front, Baker recently raised its quarterly payout by 6% to $0.19 per share, which equates to a 2.6% dividend yield.

As has been the case for most energy stocks, Baker Hughes’ share price will react to daily crude oil price changes. But, thanks to its focus on providing technologies for cutting carbon dioxide emissions, long-term, Baker Hughes is likely to outperform most oil industry stocks.

That’s my take. But I could be wrong. Do your own due diligence. The more you know about your stocks, the better your results.

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