Investing.com – Oil services stocks could enter a promising phase in 2025, if George Soros's “boom and bust sequence model” plays out as expected, according to Bernstein analysts. The sector is believed to be at the beginning of Phase 4, which historically corresponds to strong equity returns driven by the gap between improving fundamentals and investor skepticism.
“Based on this model, we view European OFS stocks – and perhaps, but to a lesser extent, North American stocks – as currently at the beginning of Phase 4,” Bernstein analysts led by Guillaume Delaby noted.
They explain that Stage 4 “tends to be very attractive for stock returns, because it results from the divergence between: 1) a rapidly improving economic reality; and 2) investor expectations that remain very low.”
“Therefore, we expect a strong performance for (mainly European) OFS stocks in 1Q25 and possibly in 2H25,” the analysts added.
Bernstein expects spending on oil and gas exploration and production to rise by about 5% in 2024, reaching nearly $600 billion. External activity witnessed stronger growth, rising by 8% to reach $250 billion, while internal investment rose by only 1% to reach $350 billion.
In 2025, capital expenditures on oil and gas are expected to rise modestly by 1-2%, to about $610 billion. External spending is expected to grow by 3-4%, reaching $260 billion, with internal expenditures expected to remain constant.
“Subsea remains the most attractive sector,” analysts highlight, citing “clear long-term demand, monopoly/oligopoly structure, lack of available vessels, and clear margin progress.”
They also point to potential upside surprises in gas and LNG projects by late 2025 or early 2026, as well as higher capex in the Middle East during 2026-2027. However, they caution that the outlook for North America remains less clear.
Regarding investment recommendations, Bernstein highlights this Saipem (a little:), ADNOC Drilling (ADX:), ADNOC Logistics & Services (L&S) (ADX:), and SBM Offshore NV (AS:) as its top picks, joining Technip Energy B.V (EPA:), which they consider “the only real growth stock in this sector.”
Saipem is expected to start the year with a project backlog worth €35 billion, with its entire fleet booked until 2026 and half of its capacity already secured in 2027.
In the Middle East, ADNOC Drilling has the potential to benefit from a $1.7 billion contract to drill up to 144 unconventional wells before 2026.
Meanwhile, Adnoc L&S is expected to double its freight segment revenue through the integration of Navig8 and expand its integrated logistics segment through significant capex initiatives.
Finally, SBM Offshore could benefit from shifting its business model toward less capital intensity, with a greater focus on operations and maintenance, explains Bernstein.
