Investing in Schlumberger Limited (SLB) Amid Rising Oil Prices
As oil prices climb above $80 for the first time since late last year, energy stocks are seeing a resurgence in strength across various timeframes. One stock that stands out in the energy sector is Schlumberger Limited (SLB), where value can potentially be unlocked given the current environment. In this blog post, we will delve into why SLB is a promising investment opportunity and discuss an options trade to capitalize on the stock’s potential.
Despite experiencing a record year in 2023, SLB’s stock price had been pressured this year due to geopolitical factors. However, the recent surge in oil prices is reinvigorating investor interest in SLB, presenting a new opportunity to add the stock to your portfolio. Examining SLB’s longer-term chart, we can see a pattern of higher highs and higher lows, with the stock recently bouncing off a bullish trendline. Additionally, SLB has historically found major support and resistance around the $54 level, and a recent breakout above this level now establishes it as a new support level. The next upside target for SLB would align with its all-time highs in the low $60s.
From a fundamental perspective, SLB is the largest service and equipment provider for oil and gas exploration, positioning it well to benefit from the decline in breakeven prices for offshore oil projects. With a forward P/E ratio of only 15, SLB currently trades at a discount compared to its historical valuation. Furthermore, strong free cash flow generation and a robust pipeline of projects suggest that SLB’s stock price has room to trade towards the upper end of its valuation history, potentially reaching its 52-week highs of $62.
Given the low implied volatility in SLB and the belief that the stock’s upside may be limited in the short term, a call vertical trade strategy could be suitable for leveraging SLB’s potential gains while managing risk. One possible trade structure is buying a May $55/$60 call vertical at a $1.66 Debit, which allows for potential profits if SLB trades above $60 at expiration.
To conclude, while investing in individual stocks entails risks, Schlumberger Limited presents an attractive opportunity for investors seeking exposure to the energy sector amidst rising oil prices. As always, it’s important to conduct thorough research and consider your own financial circumstances before making any investment decisions.
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