We recently compiled a list of the 10 Best Oilfield Services Stocks to Buy Now. In this article, we are going to take a look at where Newpark Resources Inc (NYSE:NR) stands against the other oilfield services stocks.

Brent crude oil prices have dropped below $80 per barrel from more than $90/bbl in April because of reduced demand for oil, growing worldwide stockpiles, and a decrease in geopolitical risks. In the first half of the year, prices were extremely volatile owing to rising geopolitical tensions, reductions in production by OPEC+ members, and indications of strengthening worldwide industrial production.

Global oil demand is decelerating, mirroring difficulties in the worldwide economic landscape, especially the reduction in China’s economic expansion. Amid the deceleration, oil prices finding support above the $70 barrel should be a boon for the oilfield service sector, which is highly dependent on oil and gas prices.

The oilfield and service sector is made up of companies that offer assistance to companies involved in the exploration and production of oil and gas. Consequently, the best oilfield services stocks to buy are of companies that assist in the production, repair, and upkeep of wells and drilling machinery. The companies receive multibillion-dollar contracts from integrated energy firms and independent and national oil and gas companies.

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When crude oil prices rise and remain well above the $70 barrel level, upstream companies’ ramp up spending on exploration and drilling activities, benefiting oilfield services companies. Increased spending translates to improved revenues and profit margins.

With oil prices finding support above the $70 per barrel level, the oilfield services sector should grow at a compound annual growth rate of 5.83% from $119 billion as of 2024. The robust growth is attributed to rising expectations of increased development of gas reserves and advanced technology.

While oil prices averaged $77 a barrel in 2023, persistently high inflation above 4%  was one of the reasons that the oilfield services remained under pressure. That’s because upstream companies refrained from pursuing mega exploration and development projects.

Consequently, the overall oilfield service sector had a one-year return of −11.8%, underperforming the S&P 500, which was up by about 26%. The sector is down by about 3.87% for the year, underperforming the S&P 500, which is up by about 17%.

While the underperformance is a concern, it provides an ideal entry-level for the best oilfield services stocks to buy now, as most appear to be trading at a discounted valuation.

The global upstream industry is expected to maintain its hydrocarbon investment at about $580 billion in 2024, representing an 11% year-over-year increase.  Likewise, the expected investments should make the case for investors to pay close watch to the best oilfield services stocks to buy now, trading at discounted valuations.

The second quarter showed growing momentum across different verticals in the oilfield services sector amid a slowdown in U.S. activity.

“The four major oilfield service companies are well-positioned to benefit from the multi-year global upcycle in E&P spending and the increasing demand for energy services and technology,” Evercore analyst James West wrote. “Strong earnings growth and margin expansion are being driven by international and offshore markets.”

Our Methodology

We used Yahoo Finance’s Screener to compile the list of the best oilfield services stocks to buy now. We scanned for the most significant oil & gas equipment & services companies and those with a substantial upside potential based on analysts’ average price targets. Once we had a consolidated list, we selected and ranked the stocks based on their upside potential.

We also mentioned the number of hedge funds that had bought these stocks during the same filing period. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A large oil and natural gas drilling rig in operation, surrounded by a sprawling desert landscape.

Newpark Resources Inc (NYSE:NR)

Hedge Funds Holding Stakes: 24

Stock Upside Potential as of 12/08/2024: 54.36%

Newpark Resources Inc (NYSE:NR) is one of the key players in the oilfield and service sector, which is focused on providing product rentals and services to the oil and natural gas exploration and production industries. Its Fluid Systems segment provides customers with drilling completion and related technical services.

Newpark Resources Inc (NYSE:NR) delivered solid second-quarter results, whereby Industrial Solution segment revenue increased 40% on an organic basis, totaling $179 million. Operating net income more than doubled to $13.3 million from $5.9 million a year ago.

The growth in Industrial Solutions’ income was fueled by the growth of its fleet and a persistent move by customers from traditional, wood-based mats to our DURA-BASE composite matting system. Sales of products hit a record high in the second quarter, and rental income saw a 9% rise compared to the same period last year.

Investment strategy remains focused on putting money into the rental vehicle fleet segment, returning profits through buying back our own shares, and seizing growth opportunities through both current and related worksite access markets. The business produced free cash flow of $22 million in the second quarter and saw its net leverage drop to 0.3 xs by June 30, 2024.

The stock is currently rated as a Buy with an average price target of $11.50, implying a 54.36% upside potential from current levels.

The number of hedge funds holding stakes in Newpark Resources Inc (NYSE:NR) stood at 24 out of 920, tracked by Insider Monkey as of the end of the second quarter.

Overall NR ranks 4th in our list of the best oilfield services stocks to buy. While we acknowledge the potential of NR as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.