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  • VanEck Oil Services ETF: Potential up 53% amid US sanctions on Russian oil imports
Max Manturov

Max Manturov

Head of investment research regulated by CySec 14.03.2022

VanEck Oil Services ETF: Potential up 53% amid US sanctions on Russian oil imports

Oil prices are at their highest since 2008. On the 8th of March, the US officially banned oil and gas imports from Russia. According to the International Energy Agency, Russia's share of the global oil market is 12%. Europe is also ready for a partial supply cut. The UK, for example, plans to abandon Russian oil and oil products by the end of the year.

OPEC research director Ayed Al-Qahtani said current oil prices are "unhealthy" for all market participants. But if the situation is not resolved and sanctions against Russia are tightened, prices could continue to rise.

In the current environment, consider investments in ETFs from the oil services sector, including the SPDR S&P Oil & Gas Equipment & Services ETF (XES), iShares U.S. Oil Equipment & Services ETF and VanEck Oil Services ETF.

Ticker: OIH.US
Entry price: $261
Target price: $400
Growth potential: 53.26%
Time horizon: 12 months
Risk: High
Position size: 2%
Current dividend yield: 1.42%

About the ETF fund

The VanEck Oil Services ETF (OIH) seeks to replicate the MVIS US Listed Oil Services 25 Index (MVOIHTR). It tracks the performance of the top 25 publicly traded oil companies in the US. It has a MSCI ESG Fund Rating AA.

A l ist of the companies in the fund's portfolio: Schlumberger Limited (SLB.US) - 21.45%, Halliburton Company (HAL.US) - 12.53%, Baker Hughes Company (BKR.US) - 8.11%, Tenaris S.A. (TS.US) - 4.98%, Cactus, Inc. (WHD.US) - 4.84%.

Important indicators:

  • Assets under management, AUM - $3.1bn
  • Number of share names in the ETF - 25
  • Expense Ratio - 0.35%
  • PE ratio - 27.81x
  • ETF return over the past six months - 37.69%
  • KID

What's the idea?

Buying shares in oil-focused ETFs offers an opportunity to capitalise on the cripplingly worsening energy crisis. These include the SPDR S&P Oil & Gas Equipment & Services ETF (XES), iShares U.S. Oil Equipment & Services ETF and VanEck Oil Services ETF. More details on the other ETF tracks are available in the respective materials.

Further increases in oil prices are likely to boost demand for companies operating in the oil industry. As a result, the financial performance of these companies will begin to improve. 


Buy VanEck Oil Services ETF >>

2 reasons why it is not too late to invest in this sector

Reason 1. Energy prices are rising, so there is a growing demand for petroleum services

After years of low performance, oil is entering an era of outperformance (yield). The rise in prices is primarily due to two reasons: supply imbalances and sanctions on Russia.

Energy companies have been cutting capital expenditure budgets for several years. They have not increased production, so the problem of raw material supply is particularly acute now. Because of the rising price of “black gold”, producers are willing to ramp up production. This could play into the hands of oil and gas service companies, whose services will be in increasing demand.

Reason 2. Many of the companies in these ETFs have recently increased dividends and are likely to do so again soon

3 of the 10 largest holdings in the OIH ETF have increased their dividends. Another company recently paid out for the first time.

  1. HAL (Halliburton Company) raised its quarterly dividend from $0.05 to $0.12 on the 1st of March 2022. The CEO said: "This reflects our confidence in Halliburton's strong cash generation capacity. To accelerate debt repayment and strengthen our balance sheet, we are repaying $600 million of our $1 billion debt maturing in 2025 [...] These moves demonstrate my confidence in our business customers, employees and value proposition.
  2. WHD (Cactus, Inc) raised its quarterly dividend from $0.10 to $0.11.
  3. PTEN (Patterson-UTI Energy, Inc.) has doubled its quarterly dividend from $0.02 to $0.04. The expected annual dividend yield in 2022 is 1.06%.
  4. CHX (ChampionX Corporation) paid its first quarterly dividend of $0.08. The CEO commented: "We are starting to return capital to shareholders by paying regular quarterly dividends. We believe they are sustainable throughout the cycle and also support our flexibility to invest in attractive M&A opportunities".

Risks

  1. Energy companies' stocks are currently undervalued. But they may also remain underperforming. There is always a risk that a significant period of rising returns could be followed by a correction or a period of underperformance. This is extremely common in commodity-related industries.
  2. ESG trends may limit investment in production and research in the oil industry in the future. But there is a growing global conflict and restrictions, partly enshrined in the Paris Agreement, may be postponed. This is also being pushed by the recent 20+% drop in the price of carbon credits (KRBN.US).

Conclusion

Oil and gas have been in a negative trend for many years. Recent global events have created imbalances in the markets. Demand is likely to increase over the next few quarters. 

How to take advantage of the idea?

  1. Buy ETF at a price of $261.
  2. Allocate no more than 2% of your portfolio for purchase. To compile a balanced portfolio, you can use the recommendations of our analysts.
  3. Sell when the price reaches $400.

How to Buy ETFs?

If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.

After opening an account, you can buy ETFs in either of the following ways:

Freedom24 Web Platform: In the Web Terminal section, type in the search box, and select the appropriate ETF in the results. Open a secure session in the trading window on the right, select the number of securities you want to buy, and click Buy.

Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type and select the appropriate ETF in the results. You will then see the ETF in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of securities you want to buy and click Buy.


Buy VanEck Oil Services ETF >>


*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Europe Ltd or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance Europe Ltd. do not warrant its completeness or accuracy except with respect to any disclosures relative to the Freedom Finance Europe Ltd. and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.


  • Sources of information

    https://www.reuters.com/world/europe/eu-says-it-is-prepared-partial-disruption-russian-gas-flows-2022-02-15/

    https://en.freedom24.com/ideas/12002-spdr-oil-gas-equipment-etf-investidea

    https://en.freedom24.com/ideas/12001-ishares-oil-equipment-etf-investidea

    https://www.slb.com/

    https://www.halliburton.com/

    https://www.bakerhughes.com/

    https://www.tenaris.com/

    https://www.cactuswhd.com/

    https://www.vaneck.com/us/en/investments/oil-services-etf-oih/documents/

    https://en.freedom24.com/ideas/11818-etf-krane-shares-investidea

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