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Hunting plc: The One Stock I Would Buy For 2015

The plunging oil price has been one of the big macro stories in the closing months of 2014. Brent crude was comfortably above $100 a barrel until September, but has dived to nearer $60 now.

The shares of FTSE 100 giant Royal Dutch Shell are currently 12% below their 52-week high. Shares of BP are off 16%. Companies in the oil equipment and services sector have been hit even harder.

The “picks and shovels” companies of the industry suffer when explorers and producers delay or cancel projects that have become uneconomic due to a lower price of oil. The flipside is that their shares have the potential for a big rebound when the oil price recovers.

Hunting for a winner

The company in the oil equipment and services sector I particularly like is Hunting (LSE: HTG). The shares of this FTSE 250 firm have almost halved in value since August, and are at a multi-year low of 471p (market cap £824m), as I write.

One of the attractive things about Hunting is its longevity. The company has been around for 140 years. Current chairman Richard Hunting joined the group in 1972, and has seen it all before. So, I’m sure the company will weather the low-oil-price storm, and come out the other side as a big winner.

Since selling its substantial midstream business for £626m in 2008, Hunting has been investing heavily (both organically and by way of acquisitions) in its upstream, technology-driven equipment and services division. Hunting has never been afraid to re-position its business over the years, and I’m expecting the recent — and ongoing — allocation of capital into upstream to pay off when we return to a more benign industry backdrop.

When?

The thing about the oil supply-demand equation is that there are so many factors feeding into it that it’s impossible to predict the future price direction with any certainty. Right now, bearish commentators and traders hold sway, but things can change very quickly.

The last time Hunting’s shares were trading as low as they are today was in the summer of 2010. Hunting’s shares gained 75% in nine months on the back of a rising oil price.

Now, we may or may not see an improving backdrop for Hunting during 2015. But, sooner or later, the oil price will rise. And when it does, I expect Hunting, which currently trades on a P/E of just eight, to be a big winner.

Takeover potential

There’s a round of consolidation going on in the oil equipment and services sector right now, with companies seeing scale and diversification as the way forward. This year’s M&A activity in the sector has reportedly reached over $80bn, some 40% above the previous peak year of 2007.

Hunting has received a number of approaches over the years from parties interested in making an offer for the company, but has rebuffed them. However, with chairman Richard Hunting now getting on for 70 years old, and with seemingly no successor waiting in the wings, the Hunting family, which owns 18% of the company’s shares, may be more amenable than in the past to accepting a bid at the right price.

However, it’s the strength of the business and the potential for a big rebound in the share price that are my main reasons for naming Hunting as the one stock I would buy for 2015.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.