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1 Oil-field Services Company to Watch in 2013

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Falling rig counts and pricing pressures caused 2012 to be a challenging year for the oil-field services industry. FMC Technologies (NYSE: FTI  ) wasn't immune from these challenges and that caused the company's stock to slide just over 10% in the past year. Looking ahead to 2013 the company is facing even deeper competitive challenges with new entrants into its core markets. However, I still think FMC Technologies is one that investors should watch. 

Drilling deeper
FMC Technologies is a global leader in subsea processing with a near 50% share of the market. It's a market that's getting a bit more crowded as NO. 2 player Cameron (UNKNOWN: CAM.DL  ) is teaming up with Schlumberger (NYSE: SLB  ) in a joint venture. The venture, OneSubsea, is seeded with Cameron's existing subsea division, as well as several related businesses from Schlumberger along with $600 million in cash. The new venture leverages Cameron's flow control expertise with Schlumberger's broad technology and scientific platforms. 

The energy industry is increasing its focus on the opportunities in deepwater. A significant rise in investments focused on new discoveries has led to a significant rise in production. This growth is important to FMC Technologies, as its subsea technologies business represents about two-thirds its revenue. While OneSubsea is just getting off the ground, it does pose a meaningful threat to FMC Technologies' ability to grow in the future. It's important to watch to see if the venture begins to steal customers and market share. If that begins to happen, it might be time to turn away. 

Coming up for air
Another area investors need to watch is the company's surface technologies business. At about a quarter of its revenue, surface technologies represents another important platform for FMC Technologies to grow. Lately, that business has been affected by the weakness in North America; however, that weakness according to Halliburton (NYSE: HAL  ) has bottomed as of the fourth quarter.

That recovery will be important for FMC Technologies' future growth plans in the market. It wants to pursue new platforms along the fracking cycle and has several offerings on the market with more in the pipeline. Unfortunately, it's not the only one. Top oil-field-equipment maker National Oilwell Varco (NYSE: NOV  ) offers such a vast array of products to the industry that it really stands alone at the top. In order to better compete, FMC Technologies has been bulking up by buying up smaller competitors.

Its most recent buy, Pure Energy Services, which is a provider of fracking flowback and wireline services, is another important piece in growing its shale-related business. Continued smart investments to both buy and build for future growth in this segment will be important in fending off equipment makers like National Oilwell Varco, as well as integrated service providers like Halliburton. 

Looking further afield
Analysts expect mid-teens earnings growth from FMC Technologies for the next five years. Meeting, or exceeding, those expectations is important for the company if shares are to outperform the market. It's already trading at more than 25 times earnings, which is about twice that of National Oilwell Varco. If that growth fails to materialize, investors will likely be faced with holding a sinking stock.

Investors also need to pay close attention to the company's nearly billion dollars of net debt on the balance sheet. While that debt isn't a big burden for the $11 billion company, it is something to keep an eye on, especially if the company goes shopping for more acquisitions. 

Given its recent history, that's very likely. In addition to the recent acquisition of Pure Energy Services, in the past year FMC Technologies has acquired control and automation system solutions provider Control Systems International, and remotely operated vehicle producer Shilling Robotics. I wouldn't be surprised to see more smaller-sized, bolt-on deals to help the company build out its products and services to better compete with its larger rivals.

So far this year FMC Technologies is off to a good start as it continues to compete. It's already signed several very large subsea equipment contracts with top operators. It's ability to continue to add to its backlog will be important in securing earnings visibility into the future. Another big contract would go a long way in securing helping to secure its top spot in the subsea marketplaces.

Foolish bottom line
I must say that I'm intrigued by FMC Technologies and it's on my short list of companies that I'm looking to buy. I think this stock could deliver market-beating returns over the next few years. However, if this smaller, niche equipment and services provider doesn't fit your investing profile, Halliburton might just do the trick.

Domestic oil and gas service companies have taken a hit due to a slowdown in the natural gas drilling boom of the last couple of years. As this market looks to rebound, investors would be wise to consider Halliburton, one of the top companies in the business and one of those most in tune with the domestic market. To access The Motley Fool's new premium research report on this industry stalwart, simply click here now and learn everything you need to know about how Halliburton is positioning itself both at home and abroad.

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