This week, Halliburton (“HAL”) caught my attention as it closed at US$21.38 on 14 Jun 2019, lowest since 1 Jun 2010 and 7 Aug 2009, amid 10-year low valuations.
Given the basis below, my personal view is that HAL may be presenting a favourable risk reward setup for a long trade.
Potential basis to long
a) At US$21.38, this is the lowest close since 1 Jun 2010. At 12.5x current PE and 1.9x P/BV (see Figure 1 below), these valuations seem attractive as compared to its 10Y average PE and P/BV 29.3x and 3.2x respectively;
Figure 1: Trading at 9-year low prices amid 10-year low valuations
Source: Bloomberg 17 Jun 2019
b) In a short span of two months, HAL has fallen almost 32% from US$31.59 on 17 Apr 2019 to close US$21.38 on 14 Jun 2019. Although share price has formed a new nine year low recently, it is encouraging to see that all the indicators (which I use) such as MACD, MFI, OBV and RSI are exhibiting bullish divergence. This may arguably indicate that the recent continuous downtrend may not be sustainable;
c) Average analyst target stands at US$37.93 with 29 buys; 4 holds and no sells. If the analysts are collectively correct, this represents a potential capital upside of around 77%;
Figure 1: Ave analyst target US$37.93; potential capital upside of around 77%
d) Based on Bloomberg, HAL distributes quarterly dividend of US$0.18 / share, translating to around 3.4% annualised dividend yield. Coupled with analysts’ estimated target price of US$37.93, total potential return may be in the region of around 81%;
e) Besides HAL, the oil services sector as represented by VanEck Vectors Oil Services ETF seems to be in the midst of forming a bottom (Refer to the write-up HERE), pending further price confirmation. If the oil services sector recovers in share price, HAL is likely to be benefit as it is one of the world’s largest providers of products and services to the energy industry.
a) Based on Chart 1 below, it is on a strong downtrend as evidenced by its death cross formations and downwards sloping EMAs. In fact, HAL has fallen 54% over the past one year;
Chart 1: Down 54% over the past one year
Source: InvestingNote 17 Jun 2019
Near term supports: US$21.16 / 21.04 / 20.98 / 20.55 / 20.20 – 20.26 / 20.00
Near term resistances: US$22.02 / 22.44 / 22.74 / 23.18
b) I am not familiar with the company. There may be some reasons known to the market, but not to me resulting in the continuous fall in the share price;
c) Subject to oil price. Suffice to say a sustained drop in oil price is likely to weigh on HAL as it is one of the world’s largest providers of products and services to the energy industry;
d) HAL’s RSI closed at 33.0 on 14 Jun 2019. This level is not considered oversold yet which may arguably mean that there may be more potential downside.
In view of the above, there is no doubt that HAL is on a strong downtrend. However, it seems likely that near term potential downside may be limited amid the bullish divergences shown on the various indicators. I frequently trade in and out of HAL. At the time of posting this write-up on my blog, I have no positions. This write-up is a trade idea based on potential retracement and not a trend reversal play. Nevertheless, there are significant risks (highlighted above, for example, I am not familiar with HAL’s business and its fundamentals) which we should be aware of. It is noteworthy that as I am a full time remisier, I can change my trading plan fast to capitalize on the markets’ movements (I am not the buy and hold kind). Readers should exercise their due diligence and evaluate carefully.
Readers who are not familiar with HAL can take a look at its company website HERE.
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P.S: It is noteworthy that this write-up is done on 17 Jun, Mon evening but I wasn’t able to post on my blog due to some website / technical issue.
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