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There is a current boom in both oil shale and natural gas fields. New technology has only recently made recovery of the oil and natural gas in these fields possible. Only in the last 2-4 years has much work been done on many of these fields. Yet many are prolific fields. For instance, some have estimated that there may be as much as 300 billion barrels of oil in the Bakken field. The estimates for how much is recoverable at this time range from 3.5 billion barrels of oil (according to the U.S. Geological Survey) to 24 billion barrels of oil (says Continental Resources' (NYSE:CLR) CEO). Both of these could turn out to be underestimates. In time, further technological advances may make a much larger percentage of the oil recoverable. Ditto the natural gas and NGLs in these fields around the country.

There are huge numbers of these new oil shale fields around the US. They are all starting to develop at nearly the same time due to the newly available technology. This means there will be a boom in oil services, such as seismic, drilling, fracking, and other completion services, for quite a long time. Oil service companies are in the process of augmenting their workforces by more than one-third this year alone. That’s growth!

For many of these, the market has knocked them down as they obey their high Betas. However, the analysts’ earnings and revenues estimates for these companies have stayed steady or even gone up as this has been happening. This indicates these companies' businesses are not expected to be hurt materially even in a recession. There is no fundamental reason for the fall of these stocks. This means they are a bargain now.

Five of these are Halliburton Co. (NYSE:HAL), Baker Hughes Inc. (NYSE:BHI), Patterson-UTI Energy Inc. (NASDAQ:PTEN), Nabors Industries Ltd. (NYSE:NBR), and Weatherford International Ltd. (NYSE:WFT). The current 1-year analysts’ forecast percentage gains for each of these is HAL (73%), BHI (67%), NBR (99%), PTEN (85%), and WFT (73%). These are all strong, well-established companies. They are in a strong, quickly growing industry. You should have little fear of investing in these. If you do so in a dip, they could dip lower, but they are almost certain to rise considerably above their current values within a year.

High-reward, low-risk investments are what you try to find to invest in. You should be happy with these. Since everyone has their favorite oil service company, the forecast gains for a few others are: Schlumberger (NYSE:SLB) at 51%, Cameron International (NYSE:CAM) at 39%, and National Oilwell Varco (NYSE:NOV) at 55%.

Some of the new oil fields in the US that do, or would need to, utilize this new drilling and recovery technology include:

  • The Green River Valley Oil Shale -- the largest oil shale formation in the world. Estimated to hold three times the oil reserves of Saudi Arabia. Most of this field is currently banned for drilling. It is owned by the U.S. government.
  • The Bakken Oil Shale in North Dakota, Montana, and Canada.
  • The Eagle Ford Oil Shale in Texas.
  • The Arctic National Wildlife Refuge - ANWAR. This is banned from drilling currently.
  • The Utica Oil Shale is roughly under the Marcellus shale in the U.S. It extends into Canada.
  • The Anadarko Basin.
  • The Permian Basin.
  • The Tuscaloosa Marine Shale, which is also called the Louisiana Eagle Ford (7B barrels).
  • The Tonkawa.
  • The Frontier.
  • The Granite Wash.
  • The Avalon Shale.
  • The Bone Spring.
  • The Niobrara Shale.
  • The Monterey/Santos Shale (in California). Some estimate this holds 15.4B barrels of oil.
  • The Kern County Shale (California).
  • And many more fields.

The chart below, delineating the number of drilling permits issued in the Eagle Ford Shale field by the Railroad Commission in Texas, shows just how fast these fields are growing. Some are in roughly the same state as the Eagle Ford field. Some, such as the Utica Shale, are just barely beginning to drill. The Railroad Commission drilling permits chart is below.

Let’s look at the financial fundamentals of these stocks now. The data in the table below are from TD Ameritrade and Yahoo Finance.

Stock

HAL

BHI

PTEN

NBR

WFT

Price

$40.87

$57.56

$22.64

$17.16

$15.94

1 Year Analysts’ Target price

$69.90

$96.12

$41.91

$34.19

$27.64

Predicted % Gain

71%

67%

85%

99%

73%

PE

15.60

19.14

14.96

17.51

69.00

FPE

8.96

9.59

7.19

6.73

9.54

Average Analysts’ Opinion

1.6

1.9

1.9

2.2

2.1

Miss Or Beat Amount For Last Quarter

+$0.07

+$0.02

+$0.03

-$0.01

+$0.02

EPS % Growth Estimate for 2011

62.60%

95.90%

219.40%

31.00%

57.10%

EPS % Growth Estimate for 2012

36.10%

37.90%

37.00%

72.30%

89.80%

5 Year EPS Growth Estimate Per Annum

21.84%

29.65%

17.37%

22.00%

16.00%

Market Cap

$37.59B

$25.11B

$3.49B

$4.93B

$11.93B

Enterprise Value

$39.52B

$27.78B

$3.82B

$8.53B

$18.97B

Beta

1.62

1.57

1.84

1.92

1.85

Total Cash Per Share (mrq)

$2.05

$2.15

$0.42

$2.34

$0.44

Price/Book

3.22

1.67

1.50

0.89

1.23

Price/Cash Flow

10.43

9.73

5.73

4.79

9.77

Short Interest as a % of Float

2.71%

1.57%

4.53%

2.40%

2.29%

Total Debt/Total Capital (mrq)

24.70%

19.19%

14.42%

42.64%

42.62%

Quick Ratio (mrq)

2.31

2.08

1.53

2.30

1.17

Interest Coverage (mrq)

18.43

11.43

38.01

2.62

2.61

Return on Equity (ttm)

22.49%

9.22%

10.57%

3.13%

1.86%

EPS Growth (mrq)

53.88%

231.08%

171.63%

51.57%

325.43%

EPS Growth (ttm)

95.09%

175.08%

31,482.57%

39.60%

282.25%

Revenue Growth (mrq)

35.29%

40.51%

95.47%

50.27%

25.22%

Revenue Growth (ttm)

36.44%

68.04%

115.56%

55.46%

21.53%

Annual Dividend Rate

$0.36 (0.90%)

$0.60 (1.00%)

$0.20 (0.90%)

N/A

N/A

Gross Profit Margin (ttm)

19.14%

22.19%

40.67%

39.60%

25.93%

Operating Profit Margin (ttm)

17.93%

12.52%

19.34%

3.96%

9.49%

Net Profit Margin (ttm)

11.24%

7.41%

11.57%

3.34%

1.69%

All of the above look like good investments. However, I feel safer investing in HAL, BHI, and PTEN, which all have much better net profit margins. If there is a recession, you don’t want to be in a stock that will easily become unprofitable. Their prices tend to get hit hard in that situation. Still, NBR's forecast 99% growth is attractive.

Let’s look at the charts of these five to get some input on the technical aspects of the trade(s).

The two-year chart of HAL is below:

The two-year chart of BHI is below:

The two-year chart of PTEN is below:

The two-year chart of NBR is below:

The two-year chart of WFT is below:

Each of these charts has an up-trending MACD sub chart. Each chart has put in a classical Bollinger Band double-bottom, which could become a triple bottom. Each looks like there is considerable upside in the near future. If you add the fundamentals, including the plethora of new fields that need to be drilled, fracked, and completed, all the factors add up to a very bullish picture for these stocks. These stocks should be low-risk, high-reward investments. The first three of the above (HAL, BHI, and PTEN) are a bit less risky because they have higher net profit margins.

Given the volatility of this market, legging in is a good strategy. These stocks probably aren’t going much lower, but it is always best for your profits if you can get in near the bottom. Since most of us aren’t clairvoyant, it is a good idea to leg in to achieve an approximation of this. I should mention that a number of market experts, such as Abby Cohen of Goldman Sachs and Jeffrey Saut of Raymond James, believe the market should go substantial higher this year.

Good luck trading.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HAL, BHI, PTEN, or NBR over the next 72 hours.

Source: It's Time To Buy Beaten-Down Land Oil Services Companies