Every investor wants stability, and you know where you get it? Right here in the North America. Even if you included potential hiccups due to regulation, both Canada and United States are still the top draws for global multinational energy companies seeking their fortune.
First, our abundance of oil & gas continues to increase as the fracking revolution spreads across the land. New technology has continued to push reserve estimates up to new highs. Stability comes from a decade’s worth of future energy production.
Stability also comes from the fact that we aren’t Libya, Nigeria or Iraq.
The threat of rising global conflicts along makes North America a prime destination for international energy firms seeking new sources of supply. And they are going to spend some serious bucks in order to tap it. In fact, according to investment bank Barclays, oil & gas producers are expected to increase their spending in United States by 9.6% to reach $165 billion. All for stability’s sake.
The biggest winner in all of this energy spending will be the various oil services stocks providing these firms with the know-how on fracking and drilling our nation. Here are five of the best oil services stocks to buy today:
Oil Services Stocks to Buy #1: Civeo Corporation
Spinoffs can be a big source of gains for investors, and Civeo Corporation (CVEO) is no different. Recently freed from oil services stock Oil States (OIS), CVEO is the leader in a niche offering in the oil patch, proving housing for rig workers.
Basically, if you’re an energy producer fracking a remote well — say in the Bakken shale that is too far removed from civilization for a daily commute — and have a ton of employees on the job site, CVEO will come in and build a modular housing facility for your operation.
Building these temporary “lodges” — including some that are just glorified shipping crates — is quite a profitable business. Pre-spinoff, the oil services stock managed to generate revenues of $252.8 million and EBITDA of $92.3 million during the first quarter of 2014. While that was a slight decrease versus last year’s numbers — due to currency fluctuations with its Australian and Canadian housing operations — times are changing for Civeo, and the company should be a big winner with increased energy spending.
That’s because it’s now focusing on adding more exposure to the U.S. and shale fields here. Newly built lodges in the Bakken and Williston Basin should drive future earnings. Not to mention management’s plans about becoming a real estate investment trust (REIT). That conversion should help drive multiples and dividends for CVEO shares.
Oil Services Stocks to Buy #2: C&J Energy Services
The heart of fracking lies in pressure pumping. Heavy-duty horsepower pumps are required to send the mixture of fracking downwards into a well bore and “crack” the surrounding shale rock. Unfortunately, for C&J Energy Services (CJES) the glut of excess pressure pumping equipment hasn’t been too kind for oil services stock over the last few years.
Fast forward to today, when the rise in natural gas and oil prices has energy firms drilling again. That uptick in energy spending has benefited CJES’s bottom line.
Also benefiting the firm is a $2.86 billion deal to acquire the hydraulic fracturing business of Nabors Industries (NBR). That buy will triple the size of CJES and add nearly 683 work over rigs, 11,483 fluid trucks, and 5,266 frac tanks to its arsenal. The firm has basically been vaulted into the top five in terms of fracking. And because NBR is based in tax-free Bermuda, it’ll reduce the oils service’s tax rate down to almost nothing.
Investors have already taken notice, as shares of CJES stock have risen quite nicely over the last year. Yet, with more energy spending going on, more gains could be in store for C&J. Shares of CJES stock currently trade for a forward P/E of just 15.
Oil Services Stocks to Buy #3: RPC Inc.
Oil services stock RPC (RES) is sort of a “jack of all trades” in the industry and offers a wide range of services for energy producers. That includes everything from pressure pumping and equipment rentals to firefighting and coiled tubing. Unfortunately, that broad catalog of stuff hasn’t translated into real gains at RPC in recent quarters. It seems the market has favored specialists in the oil services sector.
Overall, the oil services company recently racked up six straight quarters of earnings declines.
However, rising drilling activity and energy spending has reversed RPC’s fortunes. In the latest quarter, the firm saw a 13% increase in earnings per share and an 18% jump in revenue.
That recent positive earnings report could finally mean that the worst is over for RES stock and its investors. Wall Street seems to think so, as RES stock has recently hit new 52-week highs and has seen a variety of analyst upgrades. Looking out further, any continued spending by international oil majors could finally push the needle in RPC’s favor.
RES stock is cheap at a forward P/E of just 15, and it only has a market cap of $5 billion. That makes it a potential buyout candidate for a larger oil services company looking to beef up its presence.
Oil Services Stocks to Buy #4: Helmerich & Payne
Let’s face facts — you can’t drill a well without using a drilling rig. And Helmerich & Payne (HP) is quickly becoming the contract driller du jour for the energy sector. And as energy spending picks up in the U.S., HP is poised to profit quite a bit.
Like the other firm that shares its initials (Hewlett-Packard), the oils services HP is also all about technology. The firm’s high-tech FlexRigs can cut drilling times and costs of energy producers even though they are more expensive to rent per day. And E&P firms can get enough of them. HP recently signed deals with five energy companies to build and operate nine additional FlexRigs in the U.S. All of these rigs have been contracted out under multi-year contracts.
All that high-tech drilling have also helped pad HP’s bottom line. The most recent quarter’s earnings managed to beat analysts’ estimates by a whopping 12 cents per share. Likewise, revenues at the oils services firm also managed to impress.
High-tech drilling has also padded investors’ pockets, as well. HP recently upped its dividend by 10% and now yields a sector-leading dividend of 2.4%.
Oil Services Stocks to Buy #5: iShares US Oil Equipment & Services ETF
Can’t decide on how to play rising energy spending across U.S.? Perhaps the best oil services bet is to think a bit broader.
The iShares US Oil Equipment & Services ETF (IEZ) tracks the Dow Jones U.S. Select Oil Equipment & Services Index. That’s a benchmark of the leading firms providing all that knowledge and technological knowhow to energy producers. Investors in IEZ are treated to a portfolio of 52 different oils services stocks, including the previous members of this list as well as stalwarts like Halliburton (HAL).
That provides plenty of exposure to the theme.
It also provides plenty of returns. IEZ has managed to produce a 20% average annual total return over the last five years. That’s enough gains to turn $10,000 into nearly $25,000 over that time. Meanwhile, expenses for the exchange-traded fund (ETF) remain pretty cheap. IEZ charges fees of only 0.46% — or $46 per $10,000 invested — to own it.
All in all, given just how much firms are willing to up their energy spending to stay in with the stability of the United States, IEZ could ultimately be the biggest long-term winner.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.