Oil field services firm Schlumberger’s prospects look good in the long run
Question: I am uncertain about the energy business and concerned about my shares of Schlumberger Ltd. Please give your opinion.
Answer: The world’s largest oil field services company, with more than 100,000 employees in 80 countries, is counting on its advanced technology and research to drive profits forward.
Schlumberger operates in a cyclical business subject to energy price swings, environmental concerns and political uncertainties around the globe.
The Houston company offers an extensive portfolio of services and products, including seismic surveys, specialized software and artificial lifting, which is used to increase the flow of crude oil from a production well. Its customers include small exploration firms and production operations as well as major oil companies, including enormous state-owned firms.
Last month Schlumberger acquired Smith International for $11 billion in stock. Although Smith, which makes drilling bits and other tools for oil and gas production, further diversifies Schlumberger’s portfolio, news of the transaction hurt the company’s stock because investors questioned making such a significant deal in the current market.
Shares of Schlumberger are down 8.9% this year after a 54% increase last year and a 57% decline in 2008. The firm’s second-quarter earnings were up 32% despite the Obama administration’s move to suspend deep-water drilling in the Gulf of Mexico in the wake of the BP oil spill.
Tighter regulation in response to the spill means more spending on deep-water oil field services in the long run, which could boost the company’s earnings.
The consensus Wall Street analyst rating of Schlumberger stock is “buy,” according to Thomson Reuters, with 10 “strong buy” ratings, 17 “buys” and six “holds.”
Analysts on average expect the company’s earnings to be relatively flat this year compared with a projected 10% decline for the industry overall. A projected 36% rise in the firm’s profit next year compares with a 23% increase forecast for the sector.
Question: Is the Clipper Fund a good investment? I have heard a lot about it, but it hasn’t done so well.
Answer: This fund has been a disappointment since current managers took over in 2006, but it did perk up last year.
Because it holds only about 25 stocks, its ups and downs are more pronounced. It also made some unfortunate bets in 2008, such as buying shares of Merrill Lynch before the brokerage was acquired by Bank of America Corp. during the worst of the financial crisis.
The $1.1-billion fund is up 8.4% over the last 12 months, ranking it in the top 20% of funds that buy large-cap growth and value stocks. But its three-year annualized decline of 10% puts it in the lowest 6% of its peers.
“Chris Davis and Ken Feinberg are still solid managers, and plenty of studies have shown that every manager goes through periods of slumps,” Morningstar Inc. analyst Dan Culloton said.
Davis, whose family owns the fund’s manager, Davis Select Advisors, has been at the firm since 1991. Feinberg began as a stock analyst there in 1994.
A good sign: The Davis family has more than $40 million of its own money invested in the fund.
The fund has no sales charge but requires a $2,500 minimum initial investment. It has an annual expense ratio of 0.8%.
Andrew Leckey answers questions only through the column. E-mail him at yourmoney@tribune.com.
