The Strategist

Six energy giants that will make money on the US-Saudi Arabia partnership

05/24/2017 - 13:48

Nigam Arora, founder of the analytical company Arora Report, on how to make money on the Middle East tour of the US president.

The White House via flickr
The White House via flickr
According to media reports, several agreements for a total of several hundred billion dollars were signed during the visit of US President Donald Trump to Saudi Arabia. Which companies will benefit from this and, more importantly, what is the investment potential of these deals?

Investors in the defense and aerospace sector have already reacted to the news - shares of leading manufacturers that have concluded deals with the Saudis have grown.

And what about the energy sector? In assessing the appropriateness of investments in certain shares, Nigam Arora uses the ZYX method, which involves analyzing each paper according to six criteria: from the point of view of changes in the market situation, cash flow, technical analysis, and a number of other indicators. This method makes it possible to earn most of the money with low risk due to the fact that the investor makes a good forecast of changes in the market earlier than the bulk of participants in this market.

The American business has always been doing good in Saudi Arabia. Now things can go even better than during the presidency of Barack Obama. 

Weatherford has signed a $ 2 billion-worth memorandum of understanding on localization of Saudi Arabia production of goods and services related to the oil industry. Localization is very important for the country’s authorities, so it will not be surprising if the transaction amount increases. Weatherford is a high-risk and high-yielding paper for aggressive investors. If the oil price rises to a range of $ 65-70 per barrel, Weatherford shares could triple in price over the next three years.

Exxon Mobil has contracted a study on a possible launch of an ethylene production project. The project may be very large, however, given the huge size of Exxon, this is not an excuse to buy its shares.

General Electric has signed several contracts worth a total of $ 15 billion. Most of the transactions involve Saudi Arabia's assistance in increasing efficiency of electricity production. This is a significant amount, however, GE shares now do not meet 5 of the 6 criteria of the ZYX method.

Nabors Industries will probably invest about 9 billion dollars to create 5 thousand jobs in Saudi Arabia for 10 years. Nabors Industries’ shares now meet 5 of the 6 criteria of the ZYX-method, and Arora Report plans to issue a "buy" recommendation on them. If oil prices rise, the share price of Nabors Industries may double over the next three years.

Rowan Cos. will be producing offshore drilling rigs under a 10-year investment project worth $ 7 billion. Currently, the company’s shares correspond to only 2 out of 6 criteria of the ZYX method. About 24.1% of them are sold in short, which means that many investors are betting on their decline. Besides, there are prerequisites for a "short squeeze" - a situation in which owners of short positions will be forced to buy shares, fearing their further growth. If this happens, it is better to take a position for short-term trading, but not for long-term investment.

National Oilwell Varco will invest $ 6 billion in a joint venture for the production of drilling rigs in Saudi Arabia in 10 years. Now, National Oilwell’s shares correspond only to 3 out of 6 criteria. However, the company can conduct a buyback of shares, so they should be watched to buy at the right time.