Okay, let's be real. Baker Hughes(BKR 2.58%) second-quarter earnings weren't great, but they weren't that bad to justify the heavy sell-off on the day for a stock that's now down nearly 30% over the last three months. Moreover, there were some positives, and investors shouldn't count the stock out just yet. 

Baker Hughes earnings

The company suffered a combination of component shortages, inflationary pressures, and a $365 million charge "related to the suspension of substantially all of Baker Hughes' operations in Russia" in the quarter. It all led to adjusted operating profit increasing just 8% year over year to $376 million. After including adjustments (including Russia), Baker Hughes actually reported an operating loss of $25 million. Moreover, CEO Lorenzo Simonelli said, "the demand outlook for the next 12 to 18 months is deteriorating" during the company's earnings call.

It's not great news, but some positives exist, and investors shouldn't write off the stock too quickly. 

1. Don't write off oil just yet 

Amid the significant sell-off in commodity-related stocks, it's worth reminding that the price of oil is still around the $100 mark. While that's a decline from the $120 levels reached earlier in the year, it's still in the range where it traded before the big slump in 2014 that instigated a multiyear slump in investment in oil & gas upstream activity. Indeed, it's a point touched on by Simonelli during the earnings call; "...Due to years of underinvestment globally and the potential need to replace Russian barrels, broader supply constraints can realistically keep commodity prices at elevated levels, even in a scenario of moderate demand destruction."

In other words, if the economy doesn't fall off a cliff (and take demand with it), then it's entirely feasible that the price of oil will remain high enough to induce investment and, therefore, spending on Baker Hughes products and services. 

2. Long-cycle spending 

Simonelli's argument over years of underinvestment is supported when looking at capital spending trends of major energy companies. As a rough rule, companies tend to make capital expenditures equal to or slightly above depreciation (to finance growth). But, as you can see below, that hasn't been the case over the last few years.

SHEL Capital Expenditures  (Annual) Chart

Data by YCharts

3. Synergies coming

Simonelli believes Baker Hughes has an opportunity to better align its turbomachinery and process solutions with its digital solutions business, and its oilfield services with its oilfield equipment business. As such, management is currently evaluating changing the organizational structure to generate synergies between the businesses. CFO Brian Worrell promised to update investors when management had "a solid number" for the level of synergies – something to look out for. 

4. LNG growing strongly 

Baker Hughes is much more than upstream oil. In fact, management outlined that sharp increases in LNG investment (contracting activity running at three times the average U.S. annual contracting volume since 2015, according to Simonelli) are symptomatic of a long pathway of growth for LNG. Moreover, the relevance of LNG will only increase if Europe elects to reduce its dependence on gas from Russia. 

5. Short-term issues

Many of Baker Hughes' issues in the quarter may prove temporary. For example, the charge related to Russia and the loss of profits from that country. Similarly, the chip and component shortages negatively impacting the company's digital solutions business will likely resolve in the future. Worrell believes some "relief" will come in the second half of 2022 and anticipates a "better overall environment" in 2023. 

Looking ahead

All told, the results weren't great, but there's plenty of upside potential in Baker Hughes stock. With the price of oil around $100 a barrel and LNG investment in full swing, Baker Hughes has plenty of revenue growth potential. And while Simonelli did talk of a deteriorating demand outlook, he also spoke of the need for oil & gas majors to invest in supply even with moderation in demand. If the price of oil stays at the current level, then Baker Hughes shares could see plenty of growth.