Three Hot Ways to Play Rising Oil

10/29/2007 12:00 am EST

Focus: COMMODITIES

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

Louis Navellier, editor of Blue Chip Growth, says oil service stocks should move up along with soaring oil prices, and he recommends three of them.

Because of our insatiable appetite for oil, any threat of supply disruption will make prices soar.  (Crude closed at an all-time high near $92 a barrel Friday-Editor.) While that spells a growing headache at the pump, it is actually helping the margins of many oil-related companies.

That's why I'm recommending a few more oil service plays. FMC Technologies (NYSE: FTI) is an oil service company that provides production systems and subsea drilling. Its oil and gas products include fluid control, measurement, loading, and blending systems. The company's airport systems unit makes ground-support systems such as cargo loaders and boarding bridges.

FTI has already handed us more than 97% gains in my small- and mid-cap growth letter, Emerging Growth, and I'm very excited that the stock has finally graduated to the large-cap arena. Last quarter, the company's profits increased 11%, reporting net income of $1.10 a share on $1.15 billion in revenue, while analysts had only expected earnings of $1.01 per share. I expect more stellar results when the stock reports its third-quarter earnings on October 29. FTI is an excellent Moderately Aggressive buy below $62. (It closed near $65 Friday-Editor.)

McDermott International (NYSE: MDR) is a global engineering and construction firm active in offshore oil and gas construction, power-generation systems, and government contracting.

Its offshore business segment includes a subsidiary, J. Ray McDermott, which builds deep water and subsea oil and gas facilities. MDR's power segment is led by Babcock & Wilcox and builds fossil fuel, nuclear and other power generation systems. Its BWX Technologies subsidiary is the driving force behind the company's government segment, which provides nuclear components and services to US government agencies.

The company's second-quarter earnings more than tripled on higher demand from the booming oil and gas industries, rising 220% to $1.31 per share, compared with 41 cents per share in the same quarter a year ago. These results blew past analysts' estimates of 94 cents per share, so the company posted a whopping 39.4% earnings surprise! During the same period, sales rose 35.2% to $1.42 billion, also topping analysts' consensus forecast of $1.39 billion. With its third-quarter report right around the corner, I expect more good news. It's obvious the oil service business is scorching hot, and this stock is a great Aggressive buy below $61. (It closed just above $60 on Friday-Editor.)

Smith International (NYSE: SII) manufactures drill bits, drilling fluids, and other products. Through its Smith Services unit, the company also provides pipes, tools, and maintenance and janitorial supplies, primarily to oil and mining companies. SII reported second-quarter earnings of 76 cents per share on revenues of $2.11 billion, a 34% increase over the prior year. (It reported third-quarter earnings of 83 cents per share on October 23rd, in line with analysts' estimates-Editor.) The stock is a great Moderately Aggressive buy below $68. (The stock closed above $66 Friday-Editor.)

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