NATCO Group: Energy Supply Shortage Will Power Growth

My stock pick this week, Natco Group (NTG) comes from the oil patch services and equipment sector. This is a good hedge against high energy prices, and a play on the global emerging markets. Although the price of oil has come down a bit in the short term, longer term I see oil going back up, and past $100 a barrel, its recent new high.

From Google Finance:

Through its subsidiaries, NATCO designs, manufactures and markets oil and gas production equipment and systems. The Company operates in three segments: Oil & Water Technologies, which includes its branch distribution network located primarily in North America, including its standard and traditional oil and gas separation and dehydration equipment sales and related services and its worldwide engineered systems group; Gas Technologies, which includes its carbon dioxide [CO2] membrane business, the assets and operating arrangements related to certain CO2 gas processing facilities in West Texas and hydrogen sulfide [H2S] removal technologies, including Shell Paques, and Automation & Controls, which focuses on sales and fabrication of control panels and systems that monitor and control oil and gas production, as well as field service activities, including repair, maintenance, testing and inspection services for existing systems worldwide.

NTG Financials

Current Quarter's EPS Estimate: 0.69.
Current Year's EPS Estimate: 2.39.
Last Quarter's Earnings: 0.63.
PE on CY Estimate: 19.05.
Year Ago Earnings: 2.03.
Next Fiscal Year Estimate: 2.92.
PE on Next FY Estimate: 15.59.
Market Cap 839M.
PE: 20.

In the last 6 months sales at NTG have risen from 8.2% year over year to 9.8% year over year, its share price has increased 12.3%. As oil prices remain high the demand for equipment to get more of the black gold out remains high. So companies like NATCO that give oil companies the tools they need to prosper are enjoying the fruits as well. Nor does demand appear to be decreasing, particularly in China.

Oil and gas are critical issues globally. Until solar energy and other energy sources can overcome price and availability of fossil fuels, this area of energy production will continue to soar in my opinion. China and other emerging markets are energy hungry, and the law of supply and demand is going to drive profits of efficient companies.

Disclosure: Long NTG

Comments

[fernando]

I'm currently researching NTG. how likely you think its that the market will eventually have a flood of oil tech companies and margins will shrink for NTG and others?currently margins seem to be expanding but I wonder when the peak will come and if there is any value at a 15 forward pe

[Invest2Success]

I didn't then and am not now looking at margins to make my position for Natco. I don't know whether or not a flood of oil tech companies will come into the business or not squeezing everyone's margins. I doubt it would happen that quickly, but you never know what the future will bring until rumors hit the street and it actually happens.

I've based my position on the technicals of the chart. I see solid long term support at the recent lows made on March 3 of $39.99 on much more than normal volume. Its looks like NTG might want to consolidate here for short time, but with oil now surging to 108, Natco could start moving up also.

Longer term, I see a break out of its recent high on December 21 2007 of $60.15 if oil keeps heading higher and all goes well with with the stocks fundamentals and other factors.

I hope I helped answer your question, even though I have not taken into consideration the possible effect of increased competition.

Good day, good investing and trading!