Transocean, Noble ( NE) and Halliburton ( HAL)

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The Argus Research team likes a number of oil services companies with reasons varying from high dividend yields and attractive valuations, to robust North American growth.

Argus recently upgraded Transocean, the world's largest offshore contract drilling company to buy from hold with an $85 target price, with the explanation that the stock is undervalued and offers a very attractive 5% dividend yield.

Furthermore, much of the uncertainty about when deepwater drilling activity in the Gulf will return levels prior to that of the massive oil spill has already been priced into Transocean shares, the analysts say. According to Weiss, deepwater drilling activity has started picking up in the Gulf of Mexico, Brazil, West Africa and some areas of Asia since the five-month, post Gulf oil spill moratorium on deep water drilling moratorium in the region was lifted last October.

"Provided that Transocean is not found to be at fault or that it is indemnified for damages by BP, the primary costs related to the incident are likely to be liability for personal injury or death, the loss of the income associated with the rig being out of service, and any additional legal and insurance-related expenditures," the analysts say. Transocean was contracted by oil giant BP to provide the Deepwater Horizon drilling rig that in April 2010 suffered explosions that triggered a massive offshore oil spill in the Gulf of Mexico.

Weiss notes that Noble Corp ( NE), for which he has a buy recommendation and $50 price target, has a similar investment story to Transocean, but better margins. Highly levered to the offshore drilling operating environment, Noble has a diverse fleet that enables it to drill in harsh weather and up to 10,000 feet deep.

Still, of all the services companies in Weiss' universe, his favorite is Halliburton ( HAL), thanks in part to the company's strong North American performance.

"We expect a continuation of the current trend in which rigs drilling for natural gas are switching to liquids-based activity, which remains a key driver of robust North American results, his team says in a client note.

Argus equity analysts recently reiterated their buy rating and $56 target price on Halliburton and are raising their 2011 earnings per share (EPS) forecast for the company to $2.95 from $2.80 and 2012 estimate to $3.60 from $3.50.

They expect the company will focus on maintaining and growing share in North America, increasing international margins and expanding its presence in both deepwater and underserved international markets. The analyst says that furthermore, Halliburton's management believes it can lower costs to boost profitability. "For example, it plans to spend roughly $200 million this year building out its technology center in Houston and expanding its manufacturing capabilities, particularly in Asia."

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-- Written by Andrea Tse in New York.

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