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The price of oil has been rising and that trend is likely to continue for a number of reasons. First of all, the fears of another financial crisis due to European debt problems seems to be getting less and less likely. China's economy is also showing signs of new strength recently and that bodes well for the energy sector as that country is a major consumer of oil. The U.S. economy has seen improvement in housing and jobs data as well. When you combine all of those positive factors and also consider that central banks around the world are printing money and keeping interest rates low, this creates another strong case for buying stocks in the energy sector. That's because easy money policies can lead to inflation eventually and investors historically seek out oil, gas and gold related assets that can't be printed by central banks like paper currencies. While the market has been rising there are still some undervalued stocks in the energy sector.

Nabors Industries, Ltd. (NYSE:NBR) shares have been trending up recently, but the stock still looks cheap for longer-term investors. These shares traded for about $50 in 2008, but the financial crisis and subsequent recession pushed this stock down significantly. Nabors Industries is a leading provider of drilling, fracking, engineering, transportation and other services to many major oil and gas companies. It has a fleet of approximately 501 land drilling rigs which are deployed around the country.

A new report by Morgan Stanley (MS) lists a number of top takeover picks and Nabors Industries is on it. Many corporations have plenty of cash on the balance sheet and interest rates are extremely low. That means companies could be motivated to use cash which is earning very little, or take advantage of record low rates to borrow money for acquisitions. Nabors Industries could be an attractive takeover target because it is a leveraged play on rising energy prices and an economic recovery.

This company has been considered to be an attractive takeover target in the past as well and a few months ago the board of directors announced it adopted a plan under which shareholders will receive rights to purchase shares of a new series of preferred stock. According to the company, this was done to ensure the fair and equal treatment of the company's shareholders in connection with any initiative to acquire effective control of the company.

On January 23, a new Reuters article stated that Pamplona Capital has disclosed an 8.8% stake in Nabors Industries and that it is having discussions with the company. This could be another sign of major undervaluation and if Pamplona Capital becomes an activist investor that pushes management to create shareholder value, this could help boost the share price.

While potential risks remain, such as possible low demand for natural gas drilling, another recession, management execution, and other risks that are inherent in this industry, the upside potential seems to outweigh the downside. With the shares trading at a below market price to earnings ratio, below book value which is $20.13 per share, and with some takeover potential, this stock makes sense to consider, especially on any pullbacks.

Here are some key points for NBR:
Current share price: $15.66
The 52 week range is $12.40 to $22.73
Earnings estimates for 2012: $1.74 per share
Earnings estimates for 2013: $1.31 per share
Annual dividend: none

Data is sourced from Yahoo Finance. No guarantees or representations
are made. Hawkinvest is not a registered investment advisor and does
not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial
advisor.

Source: Nabors: This Energy Stock Is Cheap And A Buyout Target