As Congress takes up the debate on drilling for more domestic sources of oil and gas there are a number of companies, besides the obvious ones, that are poised to capture a lot of new business.
Ultimately, I believe, Congress will relent under pressure from their constituents (us!) and whole new areas previously closed to exploration and drilling will come available. While the Exxon’s, Chevron’s, Halliburton’s and Schlumberger’s stand to get most of the attention from investors (see, “Exxon Mobil (XOM) Big Oil’s Big Demise“), there are smaller companies in the industry that operate out of the spotlight that are also worthy of attention. One of them is Oil States International (OIS).
OIS is a leading maker of products for deep-water petroleum production and sub-sea pipelines. It also offers work force accommodations, catering and logistics services and modular building construction services. The company has its hands in a wide array of activities and should continue to see growth as the scope of domestic exploration and drilling continues to expand.
Given the rise in oil prices over the last year, OIS has exceeded consensus profit estimates in seven of the last eight quarters. Even so shares sit closer to their 52-week lows than their 52-week highs. There are more good quarters to come in my opinion. The recent decline in the price of crude and the general meltdown of the financial markets has no doubt taken its toll on OIS shares as shares are down some $20 since early July. As a Rational Investor the decline presents a buying opportunity.
Oil companies such as OIS can make plenty of money even if crude prices fall further (see, “What Lower Oil Prices Mean for Your Portfolio“). In fact, oil has risen since the middle of last week with news of the financial bailout and a belief that the economy will survive the recent crunch relatively unscathed. Backlog at OIS’s offshore product segment is at historic levels. Those levels will only grow if Congress does indeed open up formerly restricted offshore areas for exploration and drilling. The growth potential for OIS in such a world is quite impressive.
Other divisions are performing well too. The company’s Well Site Services segment saw a 40 percent growth in sales in the previous quarter thanks to a 66 percent increase in tool rentals. It is also seeing significant growth opportunities for its accommodations business in the oil sands region. OIS’s tubular services business, which sells well pipe and tubing, is seeing robust demand as industry OCTG inventory levels have continued to decrease with price increases announced recently by the major domestic mills – to be passed along thus helping top-line growth for this segment which already accounted for 40 percent of first-half revenue.
Shares of OIS appear cheap at current levels even if they did soar higher even with the temporary blip caused by the credit market bailout. Shares trade for just 78 percent of sales and 7 times fiscal ’09 earnings estimates but I wouldn’t be surprised if those estimates are revised higher given the company’s momentum and robust demand for its products and services.
Keep an eye on OIS, especially if oil prices fall further. You may be able to buy a gem at a discounted price.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.
