Rising oil prices and expanding overseas operations could strengthen oil services sector exchange traded funds as earnings season kicks into high gear.
Baker Hughes (NYSE: BHI) and Schlumberger (NYSE: SLB) are slated to reveal third quarter earnings Friday, October 18.
BHI saw revenue rise 5% in the second quarter after dipping in the first quarter, according to Forbes.
UBS analysts point out that Baker Hughes will profit on its Latin American presence where margins are recovering, according to 24/7 Wall St.
About 58% of analysts rate Baker as a buy.
Schlumberger generated an average 6% year-over-year growth in revenue over the past four quarters, according to Forbes. UBS analysts believe the company’s international business shows strength.
About 95% of analysts rate Schlumberger as a buy.
Investors interested gaining broad exposure to oil services can take a look at the Market Vectors Oil Services (NYSEArca: OIH) and the iShares U.S. Oil Equipment & Services ETF (NYSEArca: IEZ). [Bottom-Fishing With Refining-Heavy ETFs]
OIH has a large 20.7% position in Schlumberger, the world’s largest oil services firm, and a 5% weight to Baker Hughes. IEZ allocates a combined 27.2% of its weight to Schlumberger and Baker Hughes. So far this year, OIH is up 25.6% while IEZ gained 27.4%.
Crucial to near-term upside for the two ETFs will be comments from Schlumberger, Baker Hughes, and next week Halliburton (NYSE: HAL), regarding services demand at various North American shale formations and the outlook for international markets.
Earlier this week, it was reported, that U.S. oil production, already at multi-decade highs, has risen so dramatically that the U.S. is challenging Russia for the title of world’s largest oil producer. Some OIH and IEZ holdings are also flush with cash and those cash hoards could equal more share buybacks and the possibility of increased dividends.
Next is another big one for oil services earnings as Halliburton, National Oilwell Varco (NYSE: NOV) and Cameron International all step into the earnings confessional. That trio represents nearly a quarter of OIH’s weight.
Market Vectors Oil Services
For more information on the energy sector, visit our energy category.
Max Chen contributed to this article.