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Baker Hughes Is How to Play North America's Energy Recovery Cheap

Correction: Corrects in fourth paragraph to note data on industry price/earnings ratio came from Reuters.

NEW YORK (TheStreet) – Back in April, I told you that Baker Hughes (BHI - Get Report) was heading to $75 per share. It was clear then that despite the dominance of larger rivals Halliburton (HAL) and Schlumberger (SLB) , Baker Hughes was not content with third place. At the time, shares traded at around $69.

Less than three months later, on June 23, the stock raced to $75, reaching as high as $75.64 on July 2, gaining almost 10% since my recommendation.

Shares closed Tuesday at $69.26, up 0.64%. Despite the recent 8% pullback, Baker Hughes investors are still 25% wealthier in 2014. But it's not time to sell. If management has its way, these shares will soon regain their $75 level and then some.

With the stock trading at around 26 times trailing earnings, these shares are cheap considering the industry average P/E is 64, according to Reuters. This makes the stock a strong buy since the company is expected to grow earnings by 150% in the next two years, prompting Argus Research to raise its price target on the stock to $80.

Like both Schlumberger and Halliburton, Baker Hughes, is well positioned and remains a strong way to play both the North American energy recovery and the uptick in global demand. Management plans on driving shareholder value by focusing on its innovative strengths while accelerating the pace of commercialization.

For an industry not known for its technologies, Baker Hughes is pulling out all of the stops. The company plans to supplant conventional rod-lift systems with its new artificial lift technology LEAP, or Linear Electromagnetic Actuated Pump. For low-flow wells, rod lifts are the preferred choice. But Baker Hughes sees that as an inefficient solution, particularly when used for U.S. shale.

Industry experts believe LEAP can revolutionize the oil services industry and become a game-changer in the U.S. artificial lift market. It's not just about new products, however. Baker Hughes has developed a strong track record of execution.

Consider that despite recent geopolitical concerns including violence in Iraq and uncertainty in Ukraine -- not to mention weak oil prices and soft rig counts -- Baker Hughes has seen an average of 6% year-over-year growth in revenue in the last four quarters. This is while the company has been profitable for eight consecutive quarters.

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