Bargain Land Oil Service Companies

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Includes: BHI, CFWFF, HAL, NBR, NOV, PTEN
by: David White

The profitability point for oil land drillers is often between $50 to $60 per barrel. For many it is significantly lower than this. Recently the overall market went down. Plus the price of oil went down to a near term low of $74.95/barrel. It threatened to go down further. Virtually all oil services stocks, which are almost high Beta stocks, fell precipitously during this double whammy. They have begun to rebound, but many of the best ones still have incredible upside. If you believe the market can continue to climb its wall of worry, these stocks should yield great gains over the next few years (or even over the next few months).

The price of oil has risen with the rising market to almost $94/barrel (WTI) at the end of Nov. 3, 2011. If the oil price gains are sustained, it should allow the land oil service companies to rise dramatically. If the price of oil rises further, as many think it will, these stocks should do even better. Most do not expect oil to fall below the $80-$90 per barrel range in the near term (or perhaps ever). The lowering of the interest rates by both the ECB and the RBA by 25 basis points is inflationary. The leveraging of the EFSF to 1 trillion euros is inflationary. India has 9.7% inflation currently. The Greek referendum on the austerity measures is now apparently off the table. Forty five Asian countries are forecast to grow their GDPs by 7.5%+ for 2011 and 2012. Ditto for many other emerging market countries. These countries are all growing their energy needs dramatically. We are effectively in a secular bull market for oil and oil services. This effectively puts a floor under oil services.

The still downtrodden land oil service stocks are great bargains. With the plethora of new oil shale oil fields and the many new and old natural gas fields, these stocks are secular growers. If you consider that the amount of oil services per well (such the extra new fracking services) has grown due to the new drilling technology needed for these fields, you realize just how much work has to be done. In many cases drill crews are working 24 hours a day just to try to service the needs.

You can invest in oil service companies for the long term, and their short term gains should give you a profit cushion in case of another economic panic attack. If the EU credit crisis (or some other crisis such as the U.S. debt crisis) finally implodes, you will have time to sell them for a profit. If the EU credit crisis (or other crisis) does not implode, you should be able to keep them longer term for fantastic gains. Some of the best bargains are: Halliburton Company (NYSE:HAL), Baker Hughes Inc. (NYSE:BHI), Nabors Industries Ltd. (NYSE:NBR), National Oilwell Varco Inc. (NYSE:NOV), Patterson-UTI energy Inc. (NASDAQ:PTEN), and Calfrac Well Services Ltd.. (OTCPK:CFWFF) (also CFW.TO). The fundamental financial data for these companies is in the table below. The data are from TDameritrade and Yahoo Finance.

Stock

HAL

BHI

NBR

NOV

PTEN

CFW.TO

Price

$37.85

$56.85

$18.83

$72.76

$21.23

$31.65

1 yr Analysts’ Target price

$54.86

$83.60

$25.66

$89.33

$31.48

$50.53

Predicted % 1 yr. Gain

45%

47%

36%

23%

48%

60%

PE

13.72

18.90

13.67

16.53

11.54

12.31

FPE

9.28

9.92

8.30

12.37

7.78

7.21

Historical PE range

5 to 27

5 to 33

N/A

5 to 25

N/A

N/A

Avg. Analysts’ Opinion

1.6

1.8

2.3

1.6

2.1

1.7

Miss Or Beat Amount For Last Quarter

+$0.02

-$0.04

-$0.01

+$0.13

-$0.01

+$0.35

EPS Estimate for FY2012

$4.08

$5.73

$2.27

$5.88

$2.73

$4.39

EPS Estimate for FY2012 90 days ago

$4.55

$5.94

$2.54

$5.66

$3.14

$3.55

EPS % Growth Estimate for 2011

62.60%

96.80%

29.20%

14.40%

201.40%

208.10%

EPS % Growth Estimate for 2012

21.80%

31.10%

55.50%

25.60%

25.80%

15.80%

5 yr. EPS Growth Estimate per annum

26.25%

29.07%

20.72%

15.43%

17.37%

15.00%

Market Cap

$34.83B

$24.80B

$5.41B

$30.84B

$3.27B

$1.39B

Enterprise Value

$35.31B

$26.72B

$9.13B

$26.37B

$3.49B

$1.55B

Beta

1.50

1.39

2.06

1.47

1.76

N/A

Total Cash per share (mrq)

$2.36

$2.15

$1.38

$9.13B

$0.42

$4.24

Price/Book

2.72

1.53

0.92

1.74

1.36

2.07

Price/Cash Flow

8.37

7.83

4.27

12.43

5.18

6.27

Short Interest as a % of Float

2.34%

2.44%

2.60%

2.55%

4.59%

N/A

Total Debt/Total Capital

23.61%

19.83%

43.30%

2.88%

14.42%

--

Quick Ratio (mrq)

2.16

2.1

--

1.71

1.53

--

Interest Coverage (mrq)

21.48

13.4

3.01

--

38.01

--

Return on Equity (ttm)

24.54%

11.92%

5.24%

11.47%

10.57%

21.89%

EPS Growth (mrq)

72.39%

173.08%

348.69%

29.82%

171.63%

437.50%

EPS Growth (ttm)

89.91%

167.49%

714.51%

13.62%

31,482.57%

--

Revenue Growth (mrq)

40.36%

26.97%

53.58%

24.21%

95.47%

63.50%

Revenue Growth (ttm)

38.95%

51.92%

59.61%

11.99%

115.56%

--

Annual Dividend Rate

$0.36

$0.60

--

$0.44

$0.20

--

Gross Profit Margin (ttm)

19.88%

22.79%

38.39%

34.29%

40.67%

--

Operating Profit (ttm)

18.70%

13.76%

6.20%

19.99%

19.34%

15.90%

Net Profit Margin (ttm)

11.91%

9.37%

4.99%

13.62%

11.57%

9.87%

Click to enlarge

These all look like strong stocks for the long term, but a few items jump out at you. First CFW.TO and NOV both have had their FY2012 EPS estimates increase significantly in the last 90 days, while most other stocks and even land drillers have been decreasing their estimates. HAL. BHI, PTEN and CFW.TO have the highest forecast 1 year percentage price gains. HAL, BHI and NBR have the highest forecast 5 year percentage EPS growth per annum. PTEN and CFW.TO have the lowest FPEs. CFW.TO seems to be tops in most categories. To me this makes it a great buy - perhaps the best buy. HAL and BHI are industry leaders. You cannot go wrong with these. NBR, PTEN and BHI have the lowest Price/Book ratios, especially NBR at 0.92. In sum all are good investments.

Let’s look at the charts of each of the above for technical trading direction.

(Click to enlarge charts)

The two year chart of HAL is below.

Click to enlarge

The two year chart of BHI is below.

Click to enlarge

The two year chart of NBR is below.

Click to enlarge

The two year chart of NOV is below.

Click to enlarge

The two year chart of PTEN is below.

Click to enlarge

The two year chart of CFW.TO is below.

Click to enlarge

HAL, BHI, NBR and PTEN are all significantly below their 200-day SMAs, and they are headed upward toward it. With the recent increase in oil prices, this should mean that these stocks will soon push upward through their 200-SMAs and significantly above them. CFW.TO is near overbought levels on its slow stochastic sub chart. It is near its 200-day SMA. However, it looks to be in a substantial consolidation phase. It looks primed to break out of this phase, especially given its growth characteristics and its big recent beat.

All of the above can be bought immediately (or at least legged into). NOV is near overbought levels on its slow stochastic sub chart. It has broken through its 200-day SMA. It probably has more upside. However, its recent gain on earnings may prevent it from gaining quickly shorter term. The other stocks may be at better short term entry points. Longer term NOV looks like a great investment. You could start legging into it, but I would be conservative. I think the others should provide you with better short term gains. These should be better safeguards against a loss in the case of a new economic crisis (in case you want to sell near term).

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