Schlumberger Limited: Rounding Up The New Highs Trade Strategy

We started this week’s trading activities with an exploration of stocks making new highs and practically all our trades had followed the options of stocks making new high. In line with the new highs strategy, we will close our options trading activities this week with analysis of another stock making impressive new highs.

Schlumberger Limited (NYSE:SLB), a $ 138.02B company is our target as we wrap up this trading week. Schlumberger is the supplier of technology, integrated project management and information solutions to the international oil and gas exploration and production industry. The company’s segments include Reservoir Characterization, Drilling, Production, and Well Services among others.

Jumping Into New Highs

Schlumberger caught my attention as a “new highs” trade candidate last Friday when it made a $ 104.21 high. The spike continued on Monday when the stock rose to a new high of $ 104.68 before settling to close at $ 103.91. Shares of Schlumberger consolidated on Tuesday, Wednesday and Thursday before the share price broke out to another impressive high today. Schlumberger gained 2% to close at a new high of $ 105.99 today.

Reasons to be Optimistic about Schlumberger

When I write about trading the options of stocks making new highs, I usually opine that stocks that are trending into new high territory are more likely to forge ahead to new highs than to lose their previous gains. This statement is true of the gains recorded by the S&P 500 this week and accuracy of my submission is evident in how the share price of Schlumberger has soared within a week.

Another reason to be optimistic about Schlumberger is the company’s low valuation when you consider its P/E of 19.61 compared to the industry average of 24.8. You are likely to be impressed with the Price/Cash Flow ratio, which stands at 13.4 compared to the industry average of -8.8.

The third reason to be optimistic about Schlumberger is increased analysts’ optimism about the outlook of the company. Within the last 30 days, five investment analysts rated Schlumberger a “Hold” rating while twenty-one analysts rated the stock a “Buy” rating. Analysts at Macquire started coverage on Schlumberger and they have assigned an “Outperform” rating and a price target of $ 119.00 to the stock. Analysts at Guggenheim increased their price target on Schlumberger from $ 120.00 to $ 130.00. Analysts at FBR Capital Markets have given Schlumberger an “Outperform” rating and they have raised their price target from $ 110 to $ 117.

How to Trade SLB Options

The current share price of $ 105 at which Schlumberger trades makes the prospect of using options as a leverage on the stock very appealing. My bullish position on Schlumberger is unwavering and I will be buying the SLB Jan 2015 110.000 call (SLB150117C00110000) as soon as the market opens on Monday.