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Energy Services Trio
05/29/2014 7:00 am EST
We like the oil service companies, whom producers depend on to assess oil reservoirs and provide, operate, and maintain the equipment needed to get the oil out, explains Stephen Leeb, editor of The Complete Investor.
Their role has grown increasingly central as the focus on getting oil from shale has made the extraction process ever more complex.
When you talk about oil service companies, one company always heads the list: giant Schlumberger (SLB), the leading oil services provider (both on land and offshore) for more than two generations.
It holds dominant franchises in oilfield services and production, including reservoir characterization, which is critical in developing new reserves and squeezing additional oil from existing wells. It’s also a leading provider of drill parts.
Another favorite, benefiting from the shale boom, is National Oilwell Varco (NOV), which, among the service companies, is the clear leader in unconventional oil. It’s also the largest producer of equipment for fracking (and for deepwater drilling too).
At the moment, the shares are exceedingly cheap, sporting a P/E relative to projected growth—a metric we call PEG—well below that of the S&P 500 (SPX). The company throws off a lot of free cash, and the added kicker is that it could easily attract a suitor; we’ve put it on our list of potential takeovers.
A third, smaller company is in construction and engineering, Chicago Bridge & Iron (CBI). It specializes in energy projects in areas ranging from liquefied natural gas, to nuclear energy, to petrochemicals. Its longer-term growth should benefit from its likely role in China’s push to build nuclear plants.
Its shares have come down recently, mainly since the harsh US winter led to a slight softening in first-quarter earnings, creating an excellent buying opportunity.
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