My Top Energy Equipment & Services Stocks For 2015

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Includes: BHGE, CAM, DRQ, ERA, FET, FTI, GLF, HAL, HLX, HOS, HP, MTRX, NOV, NR, OII, ORIG, PACD, PDS, PKD, PTEN, RES, RNET, SDRL, SLCA, VTG
by: Stan Stafford

Summary

In this series of articles, I will be reviewing individual industry sectors and selecting my favorite stock picks for 2015.

For Part 22, I will be reviewing the Energy Equipment & Services industry sector, taking a look at revenue/earnings growth, valuations, recent performance, and the overall financial stability of companies.

Out of this group of reviewed stocks, my top stocks for 2015 are Halliburton, Helmerich & Payne, and RPC.

Overview

In this series of articles, I will be taking a look at various industry sectors and selecting what I believe will be outperforming stocks for 2015. In Part 1, I reviewed 47 stocks within the Aerospace and Defense industry sector. For part 22, in determining my favorite stocks in this sector for 2015, I will review the following Energy Equipment & Services stocks:

  • Baker Hughes (BHI)
  • Basic Energy Services (NYSE:BAS)
  • Bristow Group (NYSE:BRS)
  • C&J Energy Services (CJES)
  • Cameron International (NYSE:CAM)
  • Carbo Ceramics (NYSE:CRR)
  • Core Laboratories (NYSE:CLB)
  • Diamond Offshore Drilling (NYSE:DO)
  • Dresser-Rand Group (NYSE:DRC)
  • Dril-Quip (NYSE:DRQ)
  • Ensco (NYSE:ESV)
  • Era Group (NYSE:ERA)
  • Exterran Holdings (EXH)
  • FMC Technologies (NYSE:FTI)
  • Forum Energy Technologies (NYSE:FET)
  • Frank's International (NYSE:FI)
  • Geospace Technologies (NASDAQ:GEOS)
  • Gulf Island Fabrication (NASDAQ:GIFI)
  • GulfMark Offshore (NYSEMKT:GLF)
  • Halliburton (NYSE:HAL)
  • Helix Energy Solutions Group (NYSE:HLX)
  • Helmerich & Payne (NYSE:HP)
  • Hornbeck Offshore Services (NYSE:HOS)
  • ION Geophysical (NYSE:IO)
  • Key Energy Services (NYSE:KEG)
  • Matrix Service (NASDAQ:MTRX)
  • McDermott International (NYSE:MDR)
  • Nabors Industries (NYSE:NBR)
  • National Oilwell Varco (NYSE:NOV)
  • Natural Gas Services Group (NYSE:NGS)
  • Newpark Resources (NYSE:NR)
  • Noble Corp (NYSE:NE)
  • North Atlantic Drilling (NYSE:NADL)
  • Ocean Rig UDW (NASDAQ:ORIG)
  • Oceaneering International (NYSE:OII)
  • Oil States International (NYSE:OIS)
  • Pacific Drilling (NYSE:PACD)
  • Parker Drilling (NYSE:PKD)
  • Patterson-UTI Energy (NASDAQ:PTEN)
  • PHI (NASDAQ:PHIIK)
  • Pioneer Energy Services (NYSE:PES)
  • Precision Drilling (NYSE:PDS)
  • RigNet (NASDAQ:RNET)
  • Rowan Companies (NYSE:RDC)
  • RPC (NYSE:RES)
  • Schlumberger (NYSE:SLB)
  • Seacor Holdings (NYSE:CKH)
  • Seadrill (NYSE:SDRL)
  • Steel Excel (OTCQB:SXCL)
  • Superior Energy Services (NYSE:SPN)
  • Tesco (NASDAQ:TESO)
  • Tetra Technologies (NYSE:TTI)
  • Tidewater (NYSE:TDW)
  • Transocean (NYSE:RIG)
  • US Silica Holdings (NYSE:SLCA)
  • Unit (NYSE:UNT)
  • Vantage Drilling (NYSEMKT:VTG)
  • Weatherford International (NYSE:WFT)
  • Willbros Group (NYSE:WG)

Step 1

The first step I took to narrow down the list of possible options was to look at the earnings over the past five years of these stocks within the industry sector. I removed the following stocks from further review because of their negative or flat (less than 3%) earnings growth over the past five years:

  • Basic Energy Services
  • Bristow Group
  • Carbo Ceramics
  • Diamond Offshore Drilling
  • Dresser-Rand Group
  • Ensco
  • Frank's International
  • Geospace Technologies
  • Gulf Island Fabrication
  • ION Geophysical
  • Key Energy Services
  • McDermott International
  • Nabors Industries
  • Noble Corp
  • North Atlantic Drilling
  • Pioneer Energy Services
  • Rowan Companies
  • Seacor Holdings
  • Steel Excel
  • Tetra Technologies
  • Tidewater
  • Transocean
  • Unit
  • Weatherford International
  • Willbros Group

Step 2

I then took the list of remaining stocks and checked the revenue growth of each over the past two years. I am removing any stocks that had flat (less than 3%) growth or saw a decline in revenue over the past two years. These stocks include:

  • Exterran Holdings
  • Oil States International
  • Superior Energy Services
  • Tesco

Step 3

My next move was to examine the trailing PEG ratio of each of the remaining stocks. I removed any stock that had a PEG ratio over 2 to focus more specifically on fairly valued/undervalued stocks. These stocks included:

  • C&J Energy Services
  • Core Laboratories
  • Natural Gas Services
  • PHI
  • Schlumberger

Step 4

The next set of data I reviewed was the Fundamental and Value Scores for each of the ten remaining stocks. These scores are calculated by YCharts and I have found them to be very useful when researching investment options. More details on each of the scores can be found here and here.

  Fundamental Score Value Score
Baker Hughes 9 10
Cameron International 9 10
Dril-Quip 10 10
Era Group 6 10
FMC Technologies 10 10

Forum Energy Technologies

9 10
GulfMark Offshore 6 10
Halliburton 10 10
Helix Energy Solutions 4 10
Helmerich & Payne 10 10
Hornbeck Offshore Services 6 10
Matrix Service 7 9
National Oilwell Varco 9 10
Newpark Resources 8 10
Ocean Rig UDW 7 NA
Oceaneering International 9 10
Pacific Drilling 6 NA
Parker Drilling 6 NA
Patterson-UTI Energy 9 10
Precision Drilling 5 10
RigNet 8 8
RPC 10 10
Seadrill 8 9
US Silica Holdings 9 10
Vantage Drilling 4 NA

In this instance, all of the value scores were 8 or higher (with the exception of a few that did not have scores available). To determine the best stocks for 2015, I'm only taking into consideration stocks that also have a fundamental score of 9 or higher as well. Doing this left me with the following remaining stocks:

  • Baker Hughes
  • Cameron International
  • Dril-Quip
  • FMC Technologies
  • Forum Energy Technologies
  • Halliburton
  • Helmerich & Payne
  • National Oilwell Varco
  • Oceaneering International
  • Patterson-UTI Energy
  • RPC
  • US Silica Holdings

Step 5

My next step was to look at the book value of each company and to remove any stock that has seen a decrease in its book value over the past five years. However, none of the remaining stocks saw a decline in book value during this time period.

Step 6

I then looked at the remaining stocks and only included stocks with earnings yields of 8% or higher in my final analysis. The stocks that had earnings yields lower than 8% are:

  • Baker Hughes
  • Dril-Quip
  • FMC Technologies
  • Oceaneering International
  • Patterson-UTI Energy
  • US Silica Holdings

Step 7

My next step was to look closer at each stock remaining that passed all previous criteria and determine whether or not there were any reasons to eliminate them as great stock candidates for 2015. In doing so, I reviewed the financials of each company, the most recent quarterly report transcripts, and searched for any news items that warranted concern.

Cameron International

In its last quarter, the company posted a 3% increase in revenue and an increase in earnings per share from $0.90 to $1.34. The company's full year earnings increased from $2.89 in 2013 to $4.14 in 2014.

The company's Drilling and Surface segments were largely responsible for the company's strong performance. However, the sharp drop in commodity prices has resulted in lower activity and thus a decline in the company's backlog compared to the same period a year ago. Cameron still remains an attractive long term investment, but I'm not sure there is much upside potential in terms of the stock's price appreciation for the remainder of this year, due to the current market environment.

Forum Energy Technologies

In its latest quarter, the company posted a 12% increase in revenue and an increase in earnings per share from $0.36 to $0.49 compared to the same period last year.

The company recently acquired J-Mac, a manufacturer of pressure pumping equipment and consumable products and opened its new pressure pumping consumable equipment manufacturing facility in Texas. While the company faces the same challenges of others in the industry I believe that the strong performance of its production & infrastructure division will help lighten the burden of the current market environment, allowing the company to focus on improving performance and looking for appropriate acquisitions.

Halliburton

In its last quarter, the company posted a 15% increase in revenue and an increase in earnings per share from $0.90 to $1.06 when compared to the same period last year. The company had a very strong year in 2014 with 12 of its 13 product lines achieving record revenues.

While the short term represents several challenges, Halliburton is one of the companies in this industry that is best equipped to handle a downturn in the industry cycle with a strong balance sheet, revenue streams from all over the world, and an upcoming merger with Baker Hughes.

Helmerich & Payne

In its last quarter, the company posted an increase in revenue of 18% and an increase in earnings per share from $1.59 to $1.85 compared to the same period last year.

Falling oil prices are going to hurt Helmerich & Payne just as others in the market, but the company delivered strong first quarter results, and has a healthy balance sheet and contract coverage that will help weather any short term storms.

RPC

In its last quarter, the company posted a 30% increase in revenue and an increase in earnings per share from $0.17 to $0.36 compared to the same period last year. I believe that the company's strategic decision to expand its pressure pumping fleet will provide future dividends.

RPC maintains a strong balance sheet and I believe its plans to combat the market downturn with reductions to expenses and capital expenditures without reducing its quality standards such as equipment maintenance will serve the company well in terms of achieving sustained growth moving forward.

National Oilwell Varco

In its last quarter, the company posted a 8% increase in revenue and an increase in earnings per share from $1.46 to $1.62 compared to the same period last year.

While sales and earnings were up, the shift has already begun towards a poor 2015 outlook as the backlog for the company's biggest division, Rig Systems, fell 13% compared to last year. I believe that long term, National Oilwell Varco remains an attractive option, especially at its current price, but in regards to the stock this year, the company's CEO said it just about right in my opinion, "Perhaps 2015 will be tough for the stock, but IMO NOV will emerge as a stronger and more valuable company."

Conclusion

I believe that the drop in oil prices and overall shift in the energy market has created some great long term buying opportunities for investors, but i believe that Halliburton, Helmerich & Payne, and RPC are best positioned for potential positive returns this year. Looking at the chart below, you can see that these three stocks are the only three out of the final six reviewed stocks that have been able to maintain positive price appreciation throughout the first three months of the year.

CAM Chart

CAM data by YCharts

In addition to price, these three stocks can bring returns through their dividends which all appear safe based on current payout ratios.

I believe that Halliburton's merger with Bake Hughes will make the company stronger and with both companies currently downsizing, I believe that Halliburton's bottom line will hold up a bit better than expected.

With RPC moving more and more towards higher margin revenue streams (i.e. pressure pumping), I believe the company's strong balance sheet and excellent management team will help not only meet, but exceed some short term estimates, which in turn could provide some pop to the stock price this year.

Helmerich & Payne offers a great dividend yield along with a financially stable company well equipped to handle the short term effects of this energy sector downturn. I believe all three of these stocks have the potential to offer investors short term gains this year and even better returns in the long run.

For part twenty three of this series, I will be reviewing the Food & Staples Retailing industry sector. As always, I suggest individual investors perform their own research before making any investment decisions.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.