You'd never know there was a bull market by looking at oil-service stocks. A decline in U. S. drilling activity, combined with low natural-gas prices, is depressing them. Baker Hughes, one of the industry's major players, is no exception. The stock did reach 31 this year, but it has dropped back to 24 1/2, a bit below what it sold for at yearend.
Still, some contrarians say Wall Street is missing something. While it will take higher energy prices to spark more U. S. drilling and exploration, foreign spending on oil-field services is far stronger. The Soviets, for starters, are upgrading their deteriorating oil industry, since crude is one of the few products they have to bring in hard currency. "Baker Hughes is strong internationally as well as domestically and is deep and wide in products and management," says Michael Henzi, an analyst at State Street Research & Management, a major shareholder.
Analyst Tom Escott of Rauscher Pierce Refsnes thinks Baker Hughes has the industry's best earnings outlook. He sees profits of $1.25 a share for the fiscal year ending Sept. 30, and $1.60 for fiscal 1992. Aggressive investors can buy Baker Hughes warrants, which are trading over the counter at 4. Each warrant can be converted into a share of common at the faraway price of $36.75 a share. But time is on the warrant-holders' side--the paper doesn't expire until Mar. 31, 1995.
Escott doesn't think investors will have to wait nearly that long, since oil-service stocks often surge in the fourth quarter on anticipation of winter. He thinks such a rally could push the warrants to 7 and the stock to 30. Over the next 12 months, Escott predicts investors will rediscover oil services and send Baker Hughes up to 40.