3 Oversold Oil Stocks That Analysts Expect To Nearly Double

After hitting highs for 2012, oil prices have started to trend sharply lower, and a number of stocks in the oil sector have dropped considerably more. This creates a new opportunity for investors to pick up some recently battered shares at undervalued prices. Psychologically, it's tough to buy now, after all, what if the debt crisis is going to create an implosion in Europe? What if China has a "hard landing" and only sees annual growth of about 7 or 8%? If those concerns come to pass, then oil could drop further, however, longer-term investors should try to focus beyond the daily noise and headlines. Forward-looking investors need to position their portfolios for success in the next few years, not the next few days.

If you listen to the daily noise, you could end up buying at the highs when the markets are up huge and everything looks great, but then you could end up selling with a loss when markets are ugly and fear of a financial collapse from Europe is hitting the headlines. While the world economy faces multiple and serious challenges, recessions don't last forever and the global population continues to grow. Eventually that means more need for housing, energy, food, etc. Oil stocks could be one of the best sectors to invest in as the world economy recovers.

Corrections in oil are likely to be shallow, because many investors are seeking hard assets such as gold and oil, which cannot be printed like paper currencies. Central banks are expanding the money supply in an attempt to print their way out of excess debt, and that will eventually lead to inflation. The combination of increased economic activity, inflation and a growing global population could be a recipe for much higher prices for oil. With that in mind, here are a few oil stocks that have seen a substantial drop from recent highs. Investors should consider using the current weakness as a buying opportunity:

Weatherford International, Ltd. (WFT) is one of the world's largest providers of maintenance and a variety of other drilling-related services to oil and gas companies. Weatherford's services enable energy companies to drill more efficiently and lower costs, and the demand for this is expected to remain strong for the foreseeable future. This stock was trading around $17 per share just days ago, however, when Baker Hughes (BHI) announced that it expected a weak first quarter, almost all the oil service stocks fell sharply. Weatherford now trades for about $15 per share, which is just slightly above the book value of $13.09 per share. The stock looks deeply undervalued for long-term investors and the shares trade for just about 7 times forward earnings. Barclays Capital recently gave this stock an overweight rating and set a $27 price target, and that would provide current investors with a near double.

Here are some key points for WFT: Current share price: $17.74. The 52 week range is $10.85 to $23.41. Earnings estimates for 2012: $1.37 per share. Earnings estimates for 2013: $1.87 per share. Annual dividend: none

Halliburton Company (HAL) is another major oil services company. This stock also declined significantly after Baker Hughes warned, and the stock dropped from about $36 down to around $33 per share. However, the drop appears unwarranted, since Halliburton does not have the same exposure to natural gas projects when compared to Baker Hughes. The long-term future looks bright, because as oil consumption increases from emerging market countries, oil companies will be forced to explore and drill for oil in more remote locations, and at deeper depths. Halliburton shares are trading at close to half the 52-week high of $57.77, and it trades for just about 7.5 times forward earnings. On March 23, 2012, FBR Capital gave Halliburton shares an overweight rating and set a $55 price target.

Here are some key points for HAL: Current share price: $33.19. The 52 week range is $27.21 to $57.77. Earnings estimates for 2012: $3.83 per share. Earnings estimates for 2013: $4.46 per share. Annual dividend: 36 cents per share, which yields 1.1%

Nabors Industries, Ltd. (NBR) is a leading provider of drilling, fracking, engineering, transportation and other services to oil and gas companies. Nabors recently announced net income of $89.5 million, 30 cents per share in the fourth quarter and $342.2 million, or $1.17 per diluted share for the full year 2011. Analysts are expecting improved financial results for 2012 and 2013. With the stock near the lows of the recent trading range, the shares look cheap and trade for about 7 times earnings estimates. Thanks to the recent oil services stock correction, these shares even trade below book value, which is $19.43 per share. In February 2012, analysts at Argus gave Nabors shares a buy rating and set a $30 price target. That would provide current investors with nearly a double from these levels.

Here are some key points for NBR: Current share price: $17.49. The 52 week range is $11.05 to $32.47. Earnings estimates for 2012: $2.24 per share. Earnings estimates for 2013: $2.71 per share. Annual dividend: none

Disclosure: I am long HAL, WFT.

Disclaimer: Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

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