Working with people’s investments ultimately leads to questions like this: Is it a good time to buy Haliburton stock or oil stock or whatever? As I tell clients, I’m a ‘planner’ not a ‘prophet’ but if you plan well you’ll probably make a profit.
And the best way to make a profit is to have a plan – a plan on what types of investments to buy; a plan on when to enter a position; a plan on when to sell. While you cannot – without a perfect crystal ball – know where the market is going you can control your risk by controlling how you invest. And having a plan means that you’ll be less likely to be ruled by your emotions which can lead to very costly mistakes.
Right now with oil priced around $45 per barrel – down about 60% from recent highs – and gasoline at the pumps hovering around $2 per gallon (less in some places), it is tempting to ask if this sector offers a potential for an attractive gain. After all, buying low and selling high is the secret to success in investing. (Another one is having a plan).
Whether or not now is the time to buy Haliburton (XNYS: HAL) much less any other stock really depends on how it fits into your overall financial plan. Without knowing your age of retirement and life expectancy, investment risk tolerance, amount of capital to invest in proportion to your entire investment asset base and how you plan to hold the asset (taxable account or in a tax-free Roth or deferred tax IRA or 401k), it is hard to answer this question.
Morningstar research indicates that the stock is trading near its 12-month low. (As of 1/14/2015 at 10:15 AM it was trading at $37.90 and the 12-month low is $37.21). It’s current price is around the level it was trading at in March 2013. With a Morningstar ‘fair value’ estimate of $60 and a recommendation to buy at the $42 level, it is certainly a bargain at current prices.
As a provider of services to the energy industry, Haliburton has been dragged down as oil prices have tumbled to a multi-year low. With OPEC nations like Saudi Arabia declaring that they will continue to produce oil even at such low prices in an effort to maintain market share and thwart efforts to move to alternative fuels, oil prices will likely remain in this range for a while. And if continued slowing in major economies persists, the demand for oil will likely be low.
Such outside factors will certainly keep pressure on Haliburton stock in the near future though they will benefit from ongoing service contracts with OPEC producers but its major emphasis has been in the area of deep water exploration. The concern here for analysts is that with low oil prices there may be pressure to postpone such high profit margin activities into later years when oil prices recover. So this may result in near term revenue and profit margin pressures for the company.
If your goal is to generate dividends for your portfolio, there may be other opportunities that are higher than the 1.65% yield being offered here. Other broad-based Exchange Traded Funds (ETFs) have higher yields and more diversification beyond oil, utilities and financial services. Case in point: Global X SuperDividend ETF (SDIV) has a tight trading range and a yield of more than 6%. Vanguard Dividend Appreciation (VIG) has less exposure to the energy sector and low exposure to volatile utility or financial services sectors and has gained while Haliburton has fallen during the year. And with a yield of 2% it beats out Haliburton.
Another Vanguard offering is the Vanguard High Dividend Yield Fund (VYM) which offers an even higher yield (nearly 3%) with broad diversification and low energy sector exposure. All of these ETFs are used in Clear View’s MarketFlex Portfolios providing clients with diversification to lower risk and high dividends to produce income – clearly important for any investor.
If your goal is capital appreciation, there is certainly upside potential given current price levels for a stock like Haliburton. If your goal is a sustainable portfolio, then you ought to consider a properly balanced portfolio to be at the center of your investment allocation. Like a well-balanced diet, you’ll find many long-term benefits to your financial health and retirement when you put in place a well-balanced investment portfolio.
Ultimately, whether it makes sense to invest in Haliburton or any other stock, mutual fund or ETF, it all depends on what problem you’re trying to solve for: portfolio diversification, long-term capital appreciation, dividend income or short-term gains and bragging rights at the golf club.