Wood Group (J) Share News (WG.)

UBS has unsurprisingly predicted a weak fourth quarter for oil services companies in its preview of the sector's earnings season, saying it remains negative about the industry "as tough gets tougher"."We remain cautious on services as oil company capex delays and reductions are likely to impact earnings and sentiment. The sector will be volatile as sentiment shifts quickly but we stick to fundamentals," UBS said.The bank said that operating profits on average will have likely fallen by around 12% year-on-year in the last three months of 2014 given the recent collapse in crude prices.However, markets are more likely to focus on companies' outlooks, which will give management opportunities to communicate their plans to investors amid a challenging environment."Although the fall in crude prices has come rapidly, we would argue that pressure started to mount on the services in 2013 on execution issues, contract award delays and capital discipline," UBS said."So we think the oil services have had a sufficient time to review their operations and those that can communicate a strategy to reduce costs might be rewarded."The bank said stocks across the sector look cheap on various valuation metrics - the average price-to-earnings ratio of 10.2 is at a 20% discount to its five-year average - showing that markets have, to some extent, already factored in the poor outlook for orders and earnings.UBS recommended to avoid areas such as exploration where spend is expected to be weak and highlighted its preference for asset-light engineering companies like Amec and Wood Group, though Amec is its only stock in the sector rated 'buy'.