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.
