BJ Services - Primed to Rise

| About: BJ Services (BJS)

Recent months have been tough ones for the oil-services sector in general and particularly bad for BJ Services Company (BJS), which offers pressure pumping and other oilfield services. December was especially rough, sending the stock price down by nearly 20% and undoing all the rebuilding the stock had done in October and November after a tough September.

I think that the market is completely wrong about this company, assuming the worst because of some mild weather and concerns about demand for energy, and it's only a matter of time before the stock price jumps. Plus, oil is dropping for other reasons having to do with big bets gone bad by some fast money.

Even in the midst of this declining stock price, BJS's numbers have been terrific. Its operating margin is nearly 27%. Net income for 2006 was up about 80% over 2005, and the quarter ending September 30 didn't show any slacking off, with revenue up 10% over the previous quarter and net income up 7.5%. The company doesn't have a huge amount of debt, and its P/E ratio is around 10, which is quite low given we're in a bull market.

To be sure, there may be some short-term decline in demand for services offered by BJS, but it offers an essential service to an industry that is here to stay, and the company is an excellent long-term bet that you can now buy at a significant discount.

Type of stock: A highly profitable oil-services company that has had a very rough month, and has an artificially low stock price.

Price target: At just above $26, BJS is at the very low end of its 52-week range. I'd grab it now. A weak first quarter may see the price drop, maybe even below $25, but this stock should be back above $30 by the end of the year.

BJS 1-yr chart
BJS 1-yr chart