2 Interesting Investment Opportunities in Energy

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 (NYSE: CJES  )
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:

Source: C&J Energy Services

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 (NASDAQ: LINE  ) 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. 

Source: Eagle Rock Energy Partners Investor Presentation

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.  

As a special bonus for those of you that are still on the lookout for addition investment opportunities in energy, you are invited to check out The Motley Fool's "3 Stocks for $100 Oil." For FREE access to this special report, simply click here now.

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Related Tickers

7/30/2014 4:01 PM
CJES $32.47 Down -0.11 -0.34%
C&J Energy Service… CAPS Rating: *****
EROC $4.79 Down -0.01 -0.21%
Eagle Rock Energy… CAPS Rating: ***
HAL $70.74 Down -0.48 -0.67%
Halliburton CAPS Rating: *****
KMI $37.30 Up +0.13 +0.35%
Kinder Morgan CAPS Rating: *****
LINE $30.83 Down -0.12 -0.39%
Linn Energy, LLC CAPS Rating: ****