Wall Street Loves These Stocks. Should You?

Despite all of Wall Street's conflict and contention, a fortunate few companies enjoy unanimous support among professional analysts. If the market's movers and shakers believe these companies will beat the long-term averages, well, surely they will -- right?

Not so fast! With help from the 180,000 members of Motley Fool CAPS, we'll see whether these highflying favorites deserve analysts' unwavering support. Just because Wall Street loves ' em doesn't mean you have to. Analyst sentiment is just the jumping-off place for your own research.

A seismic shift
First it was flaming faucets, now the ground is shifting under the natural gas industry's hydraulic fracturing procedures -- literally. There seems to be a body of scientific research developing that suggests "fracking," or the pumping of fluids into the ground to create fissures that allow oil and gas to flow more freely, is the cause of an increased number of earthquakes, and that poses a serious problem for wastewater disposal specialist Heckmann (NYSE: HEK  ) .

It's not actually the drilling itself or even the fracking that's causing the quakes, it's the disposal of the wastewater used in fracking that's causing them. The wastewater is injected under pressure into deep, underground wells and researchers think that may be the cause of the elevated amount of seismic activity.

According to U.S. Geological Survey researchers, the number of earthquakes occurring in mid-America has jumped from 21 a year in the decades before 2000 to 134 in 2011, steadily growing along the way. It's said there's no coincidence between the increase in quakes and the amount of drilling going on.

Yet not everyone's so sure, and at least one seismologist whose report for Oklahoma was part of the reason for the conclusion reached by the USGS calls it an "interesting hypothesis" but also says the swarms of quakes could be the result of very natural causes. Because fracking is so politically charged, it's often hard to determine when real science is crowded out by political bias.

That makes Heckmann a difficult stock to recommend, at least without reservations. Its services are essential and if natural gas is going to become an even more important part of the country's energy future, its profits are assured. But economics play a role, too, and natural gas companies from Chesapeake Energy (NYSE: CHK  ) to Encana (NYSE: ECA  ) are scaling back the amount of drilling they're doing. The stuff's so cheap and there are so many rigs drilling for it that the economics don't make as much sense right now.

That toll may also be why Linn Energy (NYSE: LINE  ) , an oil and gas producer in the Permian and Williston basins that currently leans more toward natural gas than oil -- Motley Fool blogger Matthew DiLallo pegs it at 54%-46% -- partnered up with Anadarko Petroleum to help develop its Salt Creek assets in the Powder River Basin, an important methane coal structure.

For the 23% interest in the field that Linn gains, it will assist Anadarko in pumping out 1,600 barrels of oil daily in the first year and scale up to 3,800 barrels of oil per day by 2016. As oil stays in triple-digit territory, we may see the scales for Linn tilt back toward the black gold and away from gas.

The toll the fracking debate is taking is also seen on the share price of CARBO Ceramics (NYSE: CRR  ) , the top producer of proppants -- ceramic beads that are included in the fracking fluid to prop open the fissures. Its shares have been cut in half from their 52-week highs.

The CAPS community is solidly behind Heckmann's ability to bounce back, with 97% of those rating the wastewater disposal specialist marking it to outperform the market indexes. Add Heckmann to your watchlist to be alerted if this debate shakes things up even more.

Linn Energy also enjoys a high level of confidence in the investor community, where almost 1,000 CAPS members have weighed in and 98% mark it to beat the Street going forward. As TMFAimeeD points out, even in the area of natural gas, Linn's downside is protected: "Great acreage in the Granite Wash, 100% of natural gas production hedged until 2015."

Let us know on the Linn Energy CAPS page or in the comments section below if we'll see an even more significant shift toward oil and away from gas.

Agree to disagree
Some companies rise and fall with oil prices, while others provide more steady returns over the long haul. The Motley Fool has identified a company that will prosper for years to come. Read more about an energy stock set to soar in our special free report "The Only Energy Stock You'll Ever Need." Don't miss out on this limited-time offer and your opportunity to discover this under-the-radar company before the market does. Click here to access your report -- it's totally free.

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Heckmann and CARBO Ceramics. Motley Fool newsletter services have recommended buying shares of Chesapeake Energy. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On April 26, 2012, at 6:26 PM, ra0805 wrote:

    I wouldn't say Wall Street loves HEK when the share price is 45% below its 52 week high.

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