Why Halliburton Could Catch a Bounce

The first two post-election trading days have not been kind to investors, as the markets have sold off 3% to 4% across the board. Energy and energy-services stocks have taken slightly bigger hits on concerns about increasing regulations as well as a falling oil price. I believe the first part of these worries is somewhat overblown, and I would look for oil prices to stabilize in the coming weeks as well. The simple fact is that President Obama needs the energy sector to succeed if he is going to get any traction in improving the anemic rate of job growth that persisted throughout his first term.

About one out of every five jobs created since the bottom of the financial crisis has been in the oil and gas sector, on the back of a robust production boom over the past eight years or so. These are good jobs, and outside of a few additional government bureaucrats and regulators, these are among the few high-paying positions that have been created over the past five years.

I believe that one of the president's first moves will be to get the long-delayed Keystone pipeline approved. He no longer needs his environmental allies for re-election, and he can use the re-route of the pipeline from the original plan as political cover. Such a move would also reward some of the unions that stood strong with him during his get-out-the-vote efforts. This act can be done without congressional approval, it does not need taxpayer funding, it would create thousands of high-paying jobs, and it would be a good olive branch in the name of bipartisanship.

Approval of the Keystone pipeline would also improve the sentiment on the overall energy sector. That being said, you can start to nibble on some of the beaten-down names in the space. Here is a cheap oil-services stock I like here and am slowly adding again in my own portfolio.

Halliburton (HAL) is one of the largest oil services firm in the world. It is a major player in North America, and it has a presence globally.

Here are four reasons Halliburton is undervalued at just over $30 a share:

• Analysts certainly are positive on the company's longer-term prospects. The median analyst price target held by the 25 analysts who cover the stock is $44 a share. The low target among these analysts is $38 a share.
• The stock is selling near the bottom of its five-year valuation range, on the basis of price-to-sales, price-to-earnings, price-to-book and price-to-cash-flow.
• The company consistently gets a 15% to 20% return on invested capital (ROIC) and is selling for less than 10x forward earnings, a discount to its five-year average of 14.2x.
• Halliburton is selling near the bottom of the trading range it has been stuck in for a year and appears to have good technical support at just under the current price.

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