Window Dressing Part II: Cheap Oil Services Stocks

Includes: CJ, MDR
by: Bret Jensen

Yesterday I discussed how taking advantage of quarter end "window dressing" can enhance returns by picking up the bargains fund managers throw out at the end of the quarter in beaten down sectors. The energy sector has been one of the poorest performing areas of the last three months. The other day bargains among the major E&P firms were outlined. Today two firms in the oversold oil services sector will be highlighted.

"C&J Energy Services (CJES) provides hydraulic fracturing, coiled tubing, and pressure pumping services to oil and natural gas exploration and production companies." (Business description from Yahoo Finance)

Four reasons CJES is offers deep value at $18:

  1. The stock is dirt cheap at just over four times forward earnings and consensus earnings estimates have increased for both FY2012 and FY2013 over the last month.
  2. CJES is selling near the bottom of its historical range based on P/E, P/S, P/B and P/CF.
  3. The stock has a minuscule five year projected PEG (.22) and a solid balance sheet with no net debt on the books.
  4. CJES is selling some 50% under the median price target of $27.50 for the six analysts that cover the stock.

"McDermott International (NYSE:MDR) operates as an engineering, procurement, construction, and installation (EPCI) company worldwide." (Business description from Yahoo Finance)

Four reasons MDR has substantial upside from $10 a share:

  1. The stock is selling near the bottom of its five year valuation based on P/E, P/S, P/CF and P/B.
  2. MDR has a robust balance sheet with net cash representing about 1/3 of its market capitalization.
  3. The stock is cheap at under 9 times forward earnings (under 6 if you stripped out net cash) and insiders made some significant new buys in June.
  4. The 19 analysts that cover the stock have a median price target of $16 on MDR. Credit Suisse has an "outperform" rating and a $20 price target on the stock.

Disclosure: I am long CJES, MDR.