The sector that is without a doubt undervalued these days is the oil service sector. The market's overreaction and fear that this sector will experience shrinking profits are wildly overblown.
Not only are oil and gas service companies maintaining profits, some companies in this sector are growing earnings and maintaining their margins. There are four companies that stand out to us that offer above market returns going forward based on current and next years projected price earnings multiple and for two above average yields. The four companies in the oil and gas service sector are Halliburton (HAL), RPC (RES), C & J Energy Services (CJES) and Canyon Services Group (CYSVF.PK).
Halliburton along with Schlumberger are the bellwethers' of the oil service sector. However at the current time Halliburton seems like the cheaper of the two with current P/E multiple of 9 times and forward multiple of 8. RPC is also very cheap and has a higher profit margin than HAL or SLB. It's a mid-size North American shale operator and has very attractive assets.
CJES is the poster child for margins with-in the service sector and is a pure play on the hydraulic fracturing process. Canyon Services Group has the highest profit margin in the business, a benefactor of the lower Canadian corporate tax rate; it also has the largest dividend currently in the sector. Its dividend yield based on an $11.00 share value is 5.45%. These companies are currently growing at a faster rate than the S&P average.
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