Core Labs: A Fallen Angel

09/11/2014 7:00 am EST


Jim Powell

Principal Analyst, Global Changes & Opportunities

I’ve done better with fallen angels than with any other class of investment; here's a look at one such opportunity in the oil services sector, notes Jim Powell, editor of Global Changes & Opportunities Report.

Core Labs (CLB) helps energy companies throughout the world maximize the returns from their wells. The company provides clients with highly accurate maps of their reserves.

Core also conducts a detailed chemical analysis of the oil or gas and plans custom extraction services to get the maximum quantity out of the ground.

As a result, many reserves that were thought to be played out—or new reserves that were thought to be of marginal potential—can produce substantially more oil or gas than expected.

Because Core’s services can have a big impact on a client’s bottom line, the company has a long and successful history.

Investors are not happy with Core Labs right now. Abundant North American energy supplies from new shale discoveries reduced the incentive to buy Core’s services. When the company’s first quarter numbers turned out to be lower than investors expected, they bailed out.

However, the energy industry has always been cyclical. In addition, as they age, the new reserves will someday become new sources of revenue for Core. I think investors who take positions in the stock now, will be rewarded with excellent profits.

In the meantime, the risk of another big price decline from this conservative company should be low. I think Core is a good choice for investors who are nervous about a broad stock market correction.

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