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Why Is Schlumberger’s Stock Price Bullish?

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Dec. 4 2020, Updated 10:52 a.m. ET

Schlumberger versus peers and the industry

Schlumberger (SLB) is the largest OFS (oilfield equipment and services) provider by market capitalization. It had a steady run in the stock market in 2016. On December 22, Schlumberger was trading at $86.38. It was Schlumberger’s highest price in a year. It was ~25% higher than its price at the beginning of the year.

The VanEck Vectors Oil Services ETF (OIH), an ETF tracking index of 25 OFS companies, has risen 27% since the beginning of 2016. McDermott International (MDR), Schlumberger’s smaller market cap peer, rose 130% during the same period. Core Laboratories’ (CLB) stock rose 11% year-to-date. During the same period, National Oilwell Varco’s (NOV) stock price rose 12%. Schlumberger accounts for 18.6% of OIH.

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What does Schlumberger’s stock price movement tell us?

In the past year, Schlumberger’s stock price trended up. Schlumberger’s revenues stayed steady in 3Q16 and 2Q16 after falling in the previous three quarters. Its net income also improved in 3Q16 after falling in the previous quarter.

The crude oil price rise in 2016 partially explains Schlumberger’s steady run in 2016. The West Texas Intermediate crude oil price recovered ~44% year-to-date. On November 30, OPEC (Organization of the Petroleum Exporting Countries) and Russia entered into a deal to cut crude oil production. It lifted the crude oil price to over $50 in December. A higher crude oil price can lead to higher energy production, which will benefit OFS companies like Schlumberger. To learn more, read Crude Oil: Analyzing Key Insights for Investors.

Schlumberger’s moving averages

On December 22, Schlumberger’s stock price was at a 5.5% premium to its 50-day moving average. It’s trading 9.7% above its 200-day moving average.

Moving averages exhibit a smoother trend following the stock’s price movement. A 50-day moving average is a short-term moving average, while a 200-day moving average shows a long-term trend. Schlumberger’s short-term moving average crossed over the long-term moving average in April 2016. Schlumberger’s share price also stayed above it long-term moving average since the third week of May 2016. It just went above the short-term moving average in November 2016. Schlumberger’s share price is showing bullish momentum.

In Ready to Soar: What Can Investors Expect from Schlumberger? we discussed why returns from Schlumberger’s share price have been strong. In this series, we’ll discuss Schlumberger’s relative valuation multiples and other market indicators. We’ll start with Schlumberger’s historical valuation multiples in the next part.

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