NEW YORK ( TheStreet) – Oil prices are falling, causing panic among investors in some of the top names in the energy sector.
Not only is the S&P 500 energy sector down 3% year-to-date, but so is the oil price index that has declined 25% over a five-month period. The price of crude oil is now hovering around $77 a barrel and investors aren't taking any chances, for fear that weak oil prices over an extended period of time is too high a risk to bear.
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However, these cheap prices present a buying opportunity that energy investors haven't seen since last October.
Baker Hughes (BHI) , the world's third largest oilfield service company by market cap, is a prime example. Its shares have plummeted nearly 26.2% in six months and 33.8% since reaching a 52-week high of $75.64 in July. With the stock trading at around 16 times trailing earnings, which is more than two points lower than No. 1 Schlumberger (SLB) , these share are cheap.
Not to mention, Baker Hughes is expected to grow earnings by 150% to $5.59 per share in 2015, prompting Argus Research to raise its price target on the stock to $80. Analysts' price targets range from a high of $92 to a median target of $70, which calls for 12-month premium of 40%, according to CNN Money.
Compare that to the Dow Jones Industrial Average (DJI) and the S&P 500 (SPY) , which have gained 5.06% and 7.06%, respectively, over the past six months.
The chart below, courtesy of Google Finance, paints a gloomy picture about Baker Hughes' fundamentals that does not reflect Wall Street's change of heart.
Earlier this year, Baker Hughes stock was on a steady incline as its operations improved. And in the most recent quarter, its earnings have grown 9.97% year over year and its bottom line is increasing faster than its revenue, which is up 8% year-over-year.
Likewise, the company's gross margins and EBITDA margins continue to climb, advancing 34 basis points and 60 basis points, respectively, in the September quarter compared with the same time a year ago. In other words, Baker Hughes has done nothing to deserve the punishment that its stock has received, other than operating in a weak oil price environment. That's why it deserves investor attention.
North America accounts for 52% of Baker Hughes' total revenue of $6.25 billion, which is good news because revenue from North America is growing at a rate of 10.5% year over year. That almost doubles its international growth rate of 5.5%. The company's pressure pumping business, which includes hydraulic fracturing, cementing, stimulation, and coil tubing, is benefiting from increased usage by customers. These services are used in offshore and onshore oil and natural gas wells.
And the company shows no sign of slowing down. Following the release of its third-quarter results last week, Baker Hughes said it expects its North American segment to "deliver increased revenue and margins as activity levels return to normal in the Gulf of Mexico and profitability continues to improve in our pressure pumping business."
While the oil service industry does present risk to oil price fluctuations, Baker Hughes' North American operations help to minimize a portion of that risk. And with its gross margins and EBITDA margins on the uptrend, coupled with the company's bullish North America outlook, investors looking for a bargain in energy should consider Baker Hughes.
At the time of publication, the author held no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.