The energy markets have endured big swings recently, and oilfield services stocks have seen a lot of volatility. Baker Hughes (NYSE:BHGE) got bought by General Electric, but its shares continue to trade separately, and GE has taken steps to reduce its stake in the energy company. Meanwhile, National Oilwell Varco (NYSE:NOV) is a smaller company in the space, but it too has had to deal with weak oil prices and their negative impact on production activity and demand for its products and services.

Value investors have flooded into the energy sector in hopes of finding bargains, and both Baker Hughes and National Oilwell Varco seem attractive by some measures. With that in mind, let's look more closely at the two stocks to see which one looks like a better buy by current measures.

Network of pipelines supported by the same rigging infrastructure.

Image source: National Oilwell Varco.

Stock performance and valuation

Neither Baker Hughes nor National Oilwell Varco has done particularly well from a share-price perspective recently, but Baker Hughes comes out on top. The GE affiliate has suffered a drop of just 4% since February 2018, compared with a 21% plunge for Varco over the same period.

It'd be natural to think that with the bigger share-price drop, Varco would now have a clearly cheaper valuation. But at least by traditional metrics, that doesn't seem to be the case. Trailing earnings are tough to use for comparison purposes, because one-time impacts from factors like tax reform have distorted the companies' true earnings power. However, looking at the near future, investors are assigning Varco a forward earnings multiple of 34, which is more than double the corresponding figure of 16 times forward earnings for Baker Hughes. That makes Baker Hughes the clear favorite in terms of valuation.

Dividends

Another area in which Baker Hughes has a huge lead is in dividends. Its stock carries a 2.7% yield, which is above the market average and absolutely crushes the 0.7% dividend yield that National Oilwell Varco sports.

In terms of dividend growth, neither stock has done a particularly good job of it. Baker Hughes has made only a single dividend increase in the past four years, and it was just a $0.01 boost to $0.18 per share quarterly back in late 2017. Varco has gone the opposite direction, slashing its dividend from $0.46 per share to $0.05 in 2016 when the bottom fell out of the oil market. The combination of current yield and more resilient payout history gives Baker Hughes a clear edge on the dividend front.

Growth prospects and risk

2018 was supposed to be a recovery year for the oil markets, but volatility during the fourth quarter put a quick end to those hopes, and oil services companies have been left scurrying to figure out a viable strategic direction. National Oilwell Varco still sees a lot of uncertainty in the energy market, with CEO Clay Williams having done a quick 180-degree turn from his prognosis for the industry less than six months ago. Back then, it appeared that oil prices were poised to see sustained gains, and that would prompt producers to boost their activity heading into 2019. But during the fourth quarter, oil plunged, and that changed the outlook substantially. Now, Varco believes as long as crude prices stay above $50 per barrel, there'll be a level of stability for the overall industry that should be favorable. Yet recent experience dealt a blow to confidence, and nervous producers have ramped down production targets in light of the price volatility. That in turn will hit Varco's results, and unless oil can keep picking up steam, 2019 could be a challenging year for the company.

Baker Hughes has had to work hard recently to integrate its legacy operations with the assets that GE Energy brought to the table. That's gone reasonably well, and despite facing many of the same obstacles as other oilfield services companies, Baker Hughes has gotten itself back on track. Yet the challenge for shareholders of Baker Hughes is that GE still has a large stake in the company, and its own financial difficulties have prompted it to want to sell off its holdings. That large overhang has weighed on Baker Hughes' stock price. If General Electric finally moves forward with a sale or spinoff, then it could take away that overhang -- and the result could be a much more viable company in the long run.

Go with Baker Hughes

Even with the dangers of General Electric's ownership stake, Baker Hughes looks like the better buy right now. With a vastly superior valuation and dividend yield and roughly similar growth potential, Baker Hughes seems better poised than National Oilwell Varco to take advantage of a recovery in the energy markets if it eventually comes.