Please ensure Javascript is enabled for purposes of website accessibility

Why Baker Hughes Stock Fell 25% in February

By Reuben Gregg Brewer - Mar 4, 2020 at 8:08AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It was getting bad for Baker Hughes even before the deep market swoon. Here's what you need to know

What Happened

Shares of Baker Hughes Company (BKR 0.76%) declined by just a touch more than 25% in February according to data from S&P Global Market Intelligence. That, however, was just a continuation of a trend: The broadly diversified energy services giant's stock fell a painful 37% through the first two months of the year. There's a very clear tie to COVID-19 here, but the story goes beyond that single issue.

A man with a notebook in front of oil well

Image source: Getty Images

So what

Toward the end of January, Baker Hughes reported earnings that showed it was continuing to make progress in its efforts to integrate its business with the energy services operations of General Electric. Financial results weren't great, but they weren't terrible either, with sales and revenue both up 1% for the year. That was actually a respectable showing, since oil and natural gas services businesses have been facing weak demand because of low commodity prices. The market didn't really care.  

Demand for Baker Hughes products and services is highly reliant on oil prices, which have been relatively weak for some time. The escalation of COVID-19 in China at the start of the year led to immediate demand concerns in the energy sector because of that country's outsized role in the oil and natural gas markets. However, the expected impact was really second order in nature, since lower energy prices were expected to reduce demand for the types of services Baker Hughes provides to oil and gas drillers. In short, Baker Hughes shares started falling in January. 

As the impact of COVID-19 started to become more clear in February, investors pulled back more broadly. And, as you would expect, Baker Hughes' decline accelerated. Baker Hughes, as noted, was down 37% in the first two months of the year, but the S&P 500 was only down by about 8%. The big decline in the S&P 500 Index didn't start to take shape until February.

Now what

There's no question that Baker Hughes is feeling the impact of coronavirus concerns. However, the hit started almost as soon as news of the virus started to gain widespread attention because of the potential impact on energy demand. At this point, even if China begins to recover, the global spread of COVID-19 suggests that energy demand will continue to face disruption concerns. Investors should be prepared for a bumpy ride no matter what happens with the broader indexes.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Baker Hughes, a GE company Stock Quote
Baker Hughes, a GE company
$29.09 (0.76%) $0.22

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.