If you the type of investor that likes to invest in a company before it becomes a household name then I have good news for you. I've been looking at two small energy companies that are both compelling investment opportunities. Both have solid business models that could offer better long-term returns than larger rivals, which is why you might want to dig a little deeper into each to see if either is right for you.
1. C&J Energy Services (NASDAQOTH: CJESQ )
While you've probably heard of top oil-field service company Halliburton (NYSE: HAL ) , you might not be all that familiar with C&J Energy Services. Whereas Halliburton's reach is global and its portfolio of services vast, C&J does one thing and does it very well. The company is a premium provider of hydraulic fracturing services with a focus on complex and technically demanding well completions. The company is a leader in helping exploration and production companies extract oil and gas from the hard to reach shale basins found on the map below:
While the company is looking to expand as new basins emerge as well as grow its business internationally, its niche is U.S.-based shale plays. It's a niche that has served the company well as its revenue, adjusted EBITDA, and operating cash flow have all grown by a triple-digit compound annual rate since 2009. As oil and gas production continues to expand stateside, C&J offers faster domestic growth as well as more upside from future international investment opportunities than Halliburton, which could yield excellent long-term returns to investors.
2. Eagle Rock Energy Partners (NASDAQ: EROC )
While most energy investors are very familiar with MLPs, few know about Eagle Rock Energy Partners. The company is kind of like a cross between Kinder Morgan (NYSE: KMI ) and LINN Energy (NASDAQOTH: LINEQ ) in that it owns both midstream assets like processing plants as well as upstream oil and gas properties. That combination is a nice one-two punch for investors looking for unique investment opportunities in energy production.
As you can see in the slide above, Eagle Rock offers a nice blended business mix with its upstream operations contributing 54% of its profits while midstream picks up the balance. Moreover, its commodity mix is very liquids heavy – oil and natural gas liquids equate to 83% of its total commodity mix. The company's upstream operations are located in some of the same basins that LINN focuses on, including the Permian Basin and the Mid-continent. Meanwhile, its midstream business has a distinct Gulf Coast and Mid-continent focus which is where Kinder Morgan has a large concentration of assets. Best of all, the company's units are currently yielding over 11%, making it a very interesting candidate for investors seeking income opportunities. While Eagle Rock might not be the next LINN or Kinder Morgan, it does have a large runway of growth as U.S. shale gas and oil production continues to head higher.
Final Foolish thoughts
Both stocks are on the small side with market caps of less $1.5 billion, so both could be volatile. Yet, both are value priced, which limits the downside. The upside, on the other hand, is pretty much unlimited as each company has a number of growth opportunities, both in core markets and in expanding geographically. That makes both C&J and Eagle Rock pretty compelling investment candidates for investors looking for something a little different.