Is Halliburton a Good Buy?
As I have mentioned in previous posts about BP and Transocean, this huge economic disaster could also be an investment opportunity. The prices of BP, Transocean and Halliburton (HAL) have gone down significantly since the accident. Does this make Halliburton a good buy?
Since the high in April Halliburton has gone from $35 to $21 per share, and is currently about 33% off its pre-disaster price. This means that the stock has come down quite a bit. But is it a good buy likely to go up or is it going to continue to fall?
I can’t tell the future, so I don’t know. But here’s what I do know.
Humans (and investors) tend to overreact to bad news. So, in the short term, the price is likely to go way down. Especially since the spill continues to pour crude oil in the gulf every day, and it may take months to stop it. But that is just the situation in the moment. In a few months, after the well is controlled and pumping millions of dollars of oil and gas into BP’s bank accounts, it will be a different story.
The fear that dominates the news each day will be a distant memory, replaced with another crisis. As the crude oil spill gets cleaned up (or more likely dispersed throughout the worlds oceans), it will stop making headlines and people will forget all about it. The government will act tough, and BP will pay billions of dollars in fines and lawsuits, and then everything will go back to “normal”.
So, time and fading memories is one thing that Halliburton has going for it. Another big plus is that it seems to have escaped most of the blame for the disaster. BP, the oil company, has attracted the ire of politicians and the public. People hate evil oil companies that sell crude, but most people don’t even understand what Halliburton does.
Another big plus is that Halliburton is very well connected. Remember Vice President Dick Cheney? I don’t know if he is still dealing with heart attacks, but it’s pretty clear that Halliburton has many powerful friends throughout the government. I think that this is an incredibly useful time to call in a few favors.
The rising price of commodities is another great thing that Halliburton has going for it. As the dollar falls, commodities such as oil and natural gas will rise in price. Companies that sell these commodities such as BP are a good bet, but the companies that support them could be an even better bet.
The investment required to get into the oil company supply game is pretty massive. The Deepwater Horizon rig alone cost $350 million. It takes a lot of money to purchase the equipment required to support oil companies, and that keeps other companies out of the game, reducing competition. As demand for rigs and other oil company supply services rises, the profits for those companies could rise dramatically. And so will their stock price.
Although we cannot see the future with certainty, there are certain themes that seem to hold true over time. I hope these ideas proved useful in analyzing the opportunity in this disaster.
Related posts:
- Is Transocean a Good Investment – Part 2
- Is BP a Good Investment?
- Is Transocean a Good Investment?
- Falling Prices are the Bright Side of a Bad Economy
- Is BP Ready to Rebound?
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