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Why Shares of Baker Hughes, a GE Company Dropped 14.5% in November

By John Bromels – Dec 12, 2018 at 10:59PM

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Oil prices were one top reason, but there may have been another cause for the company's underperformance.

What happened

Shares of oil-field services company Baker Hughes, a GE Company (BKR 2.24%) fell 14.5% in November, according to data provided by S&P Global Market Intelligence

This was slightly worse than the oil-field services industry as a whole, as measured by the SPDR Oil & Gas Equipment & Services ETF, which was down 12.7% for the month. It was also worse than the company's industry peers, Schlumberger and Halliburton. Schlumberger shares dropped 12.1% for the month, while Halliburton's were down only 9.4%. 

A man's glasses fly off his face as a fist hits him on the side of the head.

Oil and gas services company Baker Hughes took it on the chin in November. Image source: Getty Images.

So what

The cause of the industry's woes was -- what else? -- a drop in oil prices. Brent crude prices tumbled 22.9% to finish the month at $57.71 per barrel, while WTI crude logged a similar 22.2% drop, ending the month at $50.78 per barrel. The drop in prices caused a widespread sell-off across oil-related industries, and oil-field services wasn't immune. 

However, it's noteworthy that Baker Hughes was hit a bit harder than other oil-field services companies. Looking at its performance for the month, the week of Nov. 5 was surprisingly tough for Baker. I say "surprisingly" because oil prices were actually relatively stable that week, and Schlumberger and Halliburton only registered drops that week in the 4%-to-5% range, compared with the 12% loss for Baker Hughes.

But another company had a particularly rough week that week: General Electric, which owns a 62.5% stake in Baker Hughes. GE was down 13.9% in the week of Nov. 5, thanks to CEO Larry Culp's slashing of the company's storied dividend down to $0.01 per quarter on Oct. 30. Although Baker trades separately from GE, the conglomerate's woes may have had an impact on investors' views of Baker. 

Now what

Despite Baker's poor performance in November, it has actually outperformed Halliburton and Schlumberger so far this year, down 31.8% as opposed to Schlumberger's 38.5% and Halliburton's 39.4%. On the other hand, it's underperformed those peers over three-, five-, and 10-year time frames. 

GE has announced its plan to sell its stake in Baker Hughes to raise capital, so if its relationship with Baker is indeed a drag on the company, it won't be for much longer. However, there are better buys in the oil and gas space right now.

John Bromels owns shares of General Electric. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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