Buy These Domestic Oil Services Firms

Key trends could push the domestic oil service stocks of Baker Hughes, C&J Energy Services, and Key Energy Services higher during the rest of 2014.

Mar 12, 2014 at 10:38AM

Several trends are colliding to make 2014 likely a lucrative one for investors in domestic oil services firms. First, natural gas inventories have plunged 40% below five-year averages. Second, domestic drilling rig counts are starting to move up. Third, there has been a pullback in deepwater capital budgets despite high oil prices. All of these scenarios set up the need for increasing domestic drilling budgets, at least short-term.

Despite the bullish trends and the bull market in stocks, a lot of the domestic oil service stocks trade below levels of the 2011 peaks. The firms of intrigue include: C&J Energy Services (NYSE:CJES), Baker Hughes (NYSE:BHI), and even lowly Key Energy Services (NYSE:KEG).

The confluence from built up investor demand and the above colliding trends should help turnaround what has been several years of weak demand prospects for domestic drilling. Low natural gas prices has kept the domestic drilling rig count steady while oil drilling has rocketed higher. Thus, production firms might have a need to return to drilling for natural gas.

Natural gas inventories plunge to multi-year lows
Probably the most influential data point on where oil services stocks ultimately trade during 2014 will be the natural gas storage levels over the summer. The weekly chart, seen below, from the EIA provides a clear indication that drilling for natural gas needs to pick up with inventory levels plunging below prior year levels prior to reaching the peak withdrawal date.

Screen Shot

On top of the inventory issue, the whole U.S. economy has planned for a shift to utilizing natural gas in everything from chemical plants to LNG exports. These shifts were going to require more drilling even prior to these low inventories.

Rig count increasing  
Last week, Baker Hughes reported that the number of domestic rigs drilling for oil and natural gas rose by 23 rigs to reach 1,792. The amount drilling for oil hit a new record of 1,443 rigs, while the natural gas totals are still near decade lows of only 345 rigs. The encouraging news for the oil services sector is that more rigs equals more work, but also that the natural gas rig counts are probably at unsustainably low levels. Ultimately more drilling needs to take place or natural gas prices could soar.

Though Baker Hughes is one of the major domestic oil service firms, its position in terms of scale compared to Halliburton and Schlumberger and its domestic slant have held the stock down. Even with international operations expanding 14%, Baker Hughes obtained roughly 50% of 2013 revenues from domestic operations setting it up for a better 2014.

C&J Energy Services has been very aggressive during the downturn, which probably was not noticed by many investors. The stock went public back at the market peak in 2011 and has fallen off most radars since then. The hydraulic fracturing specialist has branched out into a more full service firm in the last two years. C&J Energy Services was 100% domestic during 2013, but it is working on a test contract in the Middle East. Regardless, the stock hit a 52-week high last week based on increased domestic demand. With revenue set to soar over 18% this year, the stock could continue rising.

Beaten down Key Energy
Key Energy Services is a leading onshore, rig-based well servicing contractor focused on services such as coiled tubing, fishing, and rental services. The company is shifting operations away from Mexico, leaving it almost exclusively a domestic-focused firm. In the February earnings release, management discussed an improving operating environment with an increase in inquiries for services. The stock trades near multi-year lows at around $8 after reaching $20 back in 2011.

Bottom line
A trend is typically the friend of investors. In the case of the domestic oil service stocks, several trends are converging to snap this sector out of a couple of weak years. With natural gas inventories plunging, drilling rigs growing, and the deepwater drilling segment pulling back on spending, the firms that service the domestic drillers are perking up. With the above three stocks still off from peaks in 2011, investors should expect plenty of more upside in these stocks.

OPEC's worst nightmare is also heavily tied to onshore drilling

Imagine a company that rents a very specific and valuable piece of machinery for $41,000… per hour (that’s almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company’s can’t-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we’re calling OPEC’s Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock… and join Buffett in his quest for a veritable LANDSLIDE of profits!

Mark Holder and Stone Fox Capital clients own shares of C&J Energy Services. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers