Now is not the moment to get into the oil sector, according to one analyst.
“I think it’s time to still stay away, I don’t think it’s time to get in yet,” Brad Handler, managing director of equity research at Jefferies, told CNBC’s “Power Lunch” on Monday.
Oil prices were down about 4 percent Monday after a Saudi-Venezuela meeting over the weekend showed few signs of an impending boost to prices.
Despite geopolitical events, Handler thinks that oil companies are currently reacting to credit constraints and agency rating pressures, and are struggling to manage dividends and balance sheets. While those factors are still in play, investors should stay away from the sector, he said.
For investors willing to take the risk, Handler recommends they assume a defensive posture, just like his firm and look for companies with strong balance sheets.
While Handler does not own any of these companies, he believes these have relatively strong balance sheets, and his firm thinks investors could see less downside risk in both the top and bottom line if they invest in Schlumberger, Diamond Offshore, Frank’s International orFMC Technologies.
Diamond Offshore, a deep-water drilling contractor company, on Monday reported adjusted fourth-quarter earnings of 89 cents per share, beating estimates for 54 cents, and revenue also topped estimates. However, the company is still dealing with the effects of plummeting oil prices, and has discontinued its quarterly dividend in order to preserve cash.
Shares of Diamond Offshore and Schlumberger rose more than 1 percent Monday, while Frank’s International and FMC Technologies fell nearly 1 percent.