by Aaron Levitt | December 9, 2013 2:02 pm
With hydraulic fracturing taking over, energy production in North America is booming to say the least. From the Bakken to the Marcellus, energy stocks like Range Resources (RRC) to Whiting Petroleum (WLL) have realized plenty of profits as they have begun to tap our abundant shale resources.
Energy stock investors have reaped the rewards as well. Share prices for America’s independent energy producers have surged over the last few years as the shale story has taken hold.
However, there is more than one way to skin a cat. Aside from oil stocks like RRC and WLL, there are plenty of other ways for investors to reap the rewards of the energy and shale boom. Many of them aren’t energy stocks at all. These “quiet” shale boom plays could be some of the best kept secrets in the riding America’s road to energy independence.
Here are five of the best.
Real estate investment trusts (REITs) have garnered much attention from investors seeking income in our low interest rate environment. Energy investors may want to hone in on them as well. Specifically, Investors Real Estate Trust (IRET).
That’s because IRET is focused on the upper Mid-West and North Dakota putting it right in the center of Bakken shale country. In fact, its corporate office is the next county over from the epicenter of the Bakken boom.
Overall, IRET owns and manages a diversified portfolio of apartments, commercial and medical office buildings, senior housing facilities, retail centers, and industrial properties. High incomes and housing demand from the Bakken — from both rig workers and land-owners has helped IRET realize plenty of cash flows and rising rents from its stable of properties.
Those cash flows have been flowing back to IRET stock investors since 1971 as dividends. Currently, IRET yields a 6.1%. But, built on the back of strong apartment demand in North Dakota, IRET stock should be able to raise its payout in the future.
When most people think of Ecolab (ECL), visions of cleaning supplies and urinal cakes dance in their head. That’s because ECL is the largest provider of sanitizing programs for restaurants, hospitals and other businesses in the country.
However, it’s also becoming a monster in the world of energy.
Back in 2011, ECL made a huge $5.4 billion purchase of water treatment firm Nalco, the leading water treatment firm for oil and gas companies. Fracking a well takes millions of gallons of water to perform. That H2O needs to be cleaned and treated before it can returned to aquifers. This purchase — along with last fall’s $2.2 billion buy of Champion Technologies — has now made ECL a huge player in oilfield water/chemical treatment.
That newly dominant position in the energy sector is providing plenty of growth for ECL stock. Ecolab recently upped its dividend by 20% on the back of rising revenues for its oil field products.
For ECL stock investors, paper towel and soap sales can provide a nice cushion, while the energy assets should provide plenty of growth in the future.
Providing transportation and supply chain management solutions, Ryder Systems (R) is perhaps best known for its fleet of white rental trucks. However, Ryder is a monster of a logistics firm and has recently expanded its global reach into the oil and gas world.
Ryder recently unveiled a new logistics and transportation unit that will focus on transporting product out of the shale fields as well as equipment management and general energy logistics. According to Ryder, there are plenty of inefficiencies in energy transportation that are costing E&P firms some serious bucks. By wringing out these issues, Ryder estimates that it can save energy firms 30% on fleet equipment costs as reduce pickup and delivery delays by 50%.
That’s a big savings and could help turn the tide at some unprofitable wells.
While the division is new, Ryder stock could see plenty of organic and new growth as the E&P sector takes advantage of the cost savings in North America’s shale. Ryder stock is still pretty cheap, at a forward P/E of just 13.
There’s nothing particularly sexy about rail cars — especially when they are covered in graffiti. However, there’s big money to be made building those cars that are needed to supply the shale boom. American Railcar Industries (ARII) is chasing a bright future by doing just that.
ARII is one of the leading producers of tank cars and has benefited greatly from the crude-by-rail movement. As regions like the Bakken and Eagle Ford lack sufficient pipeline infrastructure, the refiners have be using rail roads to ship crude oil out of these fields and into their facilities. That torrid growth has caused a lack of tank car supply and ARII is filling that niche.
Recent deals with oil and gas majors like Chevron (CVX) have made ARII’s backlog for new rail cars jump to a whopping 6,300. That’s almost as many cars it shipped altogether in 2012. Those backlog orders and tank car leases have also helped ARII beat earnings estimates in the last few quarters.
For investors, American Railcar could be one best sleepy plays on the shale boom.
No industry likes seeing more regulations — except for those firms that help energy companies comply with those new rules. In the oil and gas industry that would be Mine Safety Appliances (MSA).
The company provides all sorts of safety equipment — from helmets and breathing apparatus to test systems and monitors — for a variety of industries. However, roughly 33% of its profits come from the energy and petrochemical sectors.
With the EPA and the Obama administration cracking down on the energy sector, various pundits expect a series of new rules to begin entering the shale fields. Aside from emissions, many postulate that worker safety — especially in the wake of the BP (BP) fiasco — will be a major sticking point.
These new rules benefit MSA and its sales. Already, MSA stock boasts a healthy 2.4% dividend. However, as more wells are tapped, MSA will sell more safety equipment and should be able to boost that further.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
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