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Schlumberger's Still Leading the Way

Stocks in this article: SLB HAL BHI CAM

NEW YORK (TheStreet) -- Since reaching a new 52-week high of $94.91 following a strong October quarter, shares of oil services giant Schlumberger (SLB) have been under pressure,  falling by as much as 10.5% and lagging both Halliburton (HAL) and Baker Hughes (BHI). There's been no clear explanation for this.

Schlumberger stock closed Wednesday at $88.89 and the stock is down 1.4% for the year to date.

Since I began recommending Schlumberger stock in May of last year (when shares traded in the $40s), Schlumberger's story hasn't changed. In fact, the entire industry, hurt by weak oil prices and soft rig counts (among other things), has not only reached bottom but I believe there's been a drastic boost in overall demand.

With Schlumberger's stock giving up gains just as the sector takes a turn for the better, it seems investors have decided it's better to buy the industry's laggards instead of its leaders. I don't believe this makes much, if any, sense in this case. Overall energy conditions are improving. Schlumberger, which has a high-performing joint venture with Cameron International (CAM) called OneSubsea, has the tools and capabilities to differentiate itself from its peers, particularly from an innovative perspective.

On Friday, the company will report its fourth-quarter and year-end results. The way I see it, investors have to have been completely blind to not already appreciate what this management team has done in a relatively short period of time. The Street, meanwhile, which expects close to 8% year-over-year revenue growth and a 23% jump in earnings, demands more. These targets, if reached, will be no small accomplishment. Still, I wouldn't focus solely on these near-term metrics.

The important thing to remember here is industry oil prices have finally begun to stabilize, which should add a meaningful boost to long-term demand for Schlumberger's services. Plus, unlike Halliburton, which generates roughly 50% of its revenue in the U.S., the U.S. accounts for only a third of Schlumberger's revenue and profits.

What this means is Schlumberger generates a significant portion of its business from international markets. Schlumberger's third quarter, which produced year-over-year revenue growth of 7% and 3%, respectively, for North America and internationally, demonstrated the advantage the company has from a well-diversified business.

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