During the middle weeks of September, we wrote a string of investment articles about a potential Energy Sector comeback recommending Halliburton (NYSE: HAL), Schlumberger (NYSE: SLB), Complete Production Services (NYSE: CPX), InterOil Corporation (NYSE: IOC), and Energy XXI (NASDAQ: EXXI).
Since the initial recommendation many of these stocks fell flat but in recent weeks many have soared generating strong yields and returns. We believe the individual success of these companies will only continue as the oil services sector recovers after falling from highs of this past spring.
While some people are worried, we are far from concerned. We believe if anything this dip just makes energy stocks more affordable. We believe high oil prices aren’t as far off as we think. We still think the oil-services sub-sector is a strong buy. Oil service companies are the experts in the field that make things easier on companies like ExxonMobil (NYSE: XOM) and Shell (NYSE: RDS).
Their expertise ranges from manufacturing equipment to developing new technologies, making the process of drilling for black gold much easier and efficient. Oil-service plays are more of a play on technology than a play on oil. These companies aren’t subjected to the price of oil, or at least they shouldn’t be. Simply put, they are here to help the oil company’s drill and improve efficiency.
When looking for top oil-services plays it’s best to start at the top. Halliburton and Sclumberger are both large-cap oil service companies and they are very good at what they do. In recent years, their engineering capabilities, innovations and advancement have increased total production 75% and led to a 50% reduction in pumping times. One of their biggest technological advancements, Horizontal Drilling, is now being implemented by companies all over the world. These huge advancements have led to a huge boom in domestic drilling within North America and have led to a surge in new orders and generated billions more in revenue. No major or independent oil company operates without the help of one of these guys. While some of these stocks have taken a short-term hit, I still believe the long-term fundamentals are in place that will lead to huge incremental gains. As for the stock picks that are up, keep on riding them higher. Below is a breakdown of what our following stock picks have done so far since we recommended them. In addition, while many of these stocks fell significantly at the beginning we have seen that they all hit their low points on October 4, and since then have been on a tear rising significantly higher, a trend we believe will only continue:
EXXI Currently: $27.48 Originally: $22.89 Total Yield: +20.5%
(EXXI was trading at $20.50 October 4, a low point for the stock but since then has soared 35%)
IOC Currently: $47.30 Originally: $52.16 Total Yield: -10%
(IOC was trading at $34 on October 4th a low point for the stock but since then has soared 40%)
CPX Currently: $30.56 Originally: $22.74 Total Yield: +35%
(CPX was trading at $17 October 4, a low point for the stock but since then has soared 80%)
HAL Currently: $33.95 Originally: $40 Total Yield: -15%
(HAL was trading at $28 October 4, a low point for the stock but since then has soared 22%)
SLB Currently: $67.90 Originally: $70.50 Total Yield: -4%
(SLB was trading at $57 October 4, a low point for the stock but since then has soared 25%)
Looking down the list the small-cap energy plays have been on a rise.
CPX has done very well as the small player decided to merge with another small player, Superior Energy Services (NYSE: SPN), as the company was purchased for $2.7 billion.
EXXI also has been a good pick as the company’s recent acquisitions have been paying big dividends in increased total revenue and sales.
IOC has struggled though as its enormous new contract in Papa New Guinea starts to payout we believe they will rise.
Then finally we have the large-caps, Halliburton and Schlumberger, which I think will be just fine. They are both the top dogs in their industry. HAL serves the upstream oil & gas industry focusing on drilling, evaluation, & completion of production services while SLB combines oil-field services with the largest seismic imaging company. The fundamentals for both these stocks are solid up and down the board and that’s why we’re confident in both of them and think they will pay off big-time.
The upside for these investments is the fact that they have historically bounced back relatively fast from the last recession so even if we see another slide we don’t believe it will be as prolonged or catastrophic as other industries. We also believe the fact that many of these companies are not just assisting the oil drillers but helping the gas business pay great dividends too. Gas drilling is booming across the globe right now, particularly in the United States. This will help many of the companies above if oil prices fall. Overall despite the temporary dip the fundamentals for many of these companies have not shifted at all. Stay invested, stay optimistic and long-term it will pay off. For more analysis on all the above-mentioned picks, read the original articles:
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.