For Foolish investors, the recent slide in oil prices may raise doubts about the attractiveness of energy investments, at least for the short term. Prices have tumbled from July's $78 per barrel to a recent $60, driven by everything from increased OPEC production to predictions of a mild North American winter to the specter of an economic recession in the United States. The energy sector's hardly monolithic, but as the largest energy services company, Schlumberger
Much like rivals Baker Hughes
Will lower crude prices curtail that exploratory and development activity? I don't think so. I'll wager that prospect economics are still tested by producers at far below a $50 threshold. I'm also inclined to note that the crude price decline has benefited from a confluence of weather in the U.S. and benign international geopolitics. Unpleasant as it may sound, it's been said that we remain one suicide bomber away from a return to higher prices.
Analysts expect Schlumberger, which earned $1.81 a share in 2005, to reach $2.96 this year and $3.74 the next. Given that projected ramp, its trailing P/E is just more than 24, but its forward P/E is less than 17. Also important, in my opinion: a P/E-to-growth ratio of just 0.85, indicating that its P/E is lower than its expected five-year growth rate.
Add to all this the prediction that the world will need half again as much crude oil production by 2030 as it uses today, and I believe that Schlumberger and many of its energy service peers remain attractive, even without peak-priced oil.
For more on the crude world, check out:
- Schlumberger: Punished for Performance
- Halliburton Investors Get Antsy
- Weatherford and the Lure of the East
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