Click here to sign up for Motley Fool Stock Advisor!

3 Stocks for $100 Oil

It's no secret that oil prices are on the rise.

Although turmoil in the Middle East adds volatility to the near-term price of oil -- leading Arnaud de Borchgrave, a director at the Center for Strategic & International Studies to speculate oil could rise "quickly to $300 or even $400 a barrel" -- oil's long-term future depends on much more than just this...

As with all commodities, the price of oil boils down to supply and demand.

Global demand for oil is rising. Much of this comes from emerging countries like China. New vehicle sales in China are forecasted to top 20 million in 2013. And that's after overall oil consumption there rose about 4.3% in 2012.

At the same time, global supply is limited. Oil is a finite resource and is becoming increasingly harder to locate and extract.

And it's the intersection of these two trends that will continue to drive the price of oil higher.

Don't just take my word for it...

Even before recent problems in the Middle East resurfaced, billionaire investor Jim Rogers told the BBC, "the price of oil is going to make new highs. It will go over $150 barrel. It will probably go over $200 a barrel."

Even more startling, Professor Paul Stevens of the London-based Chatham House wrote that, "a supply crunch appears likely around 2013... given recent price experience, a spike in excess of $200 per barrel is not infeasible."

Obviously this would be disastrous for the global economy and many stocks. But certain companies actually stand to profit...

In fact, an Oppenheimer analyst writes that certain specialized oil companies, "basically start printing money once oil is above $90 a barrel." Meaning now is clearly the time to buy stocks of companies like this.

Tom Gardner, CEO and co-founder of The Motley Fool, recently rounded up a team of up-and-coming Motley Fool equity analysts bullish on oil and natural gas service companies, and asked them to share their favorite stocks to play the oil boom.

And after you read through these recommendations, you'll find out how to get a look at Tom Gardner's favorite oil company.

Click below to see their first stock recommendation -- a small-cap oil services company that should see a huge increase in free cash as oil continues to rise.

A Small-Cap Oil & Gas Play

By Jason Moser 

GulfMark Offshore [NYSE: GLF] provides offshore marine services throughout the world to companies involved in the exploration and production of oil and natural gas. This $1 billion company owns vessels that transport materials, supplies, and personnel, and position drilling structures.

Why now's the time to buy

GulfMark's fleet is one of the youngest in the industry.And although dayrates (the fees drilling contractors receive from oil and gas companies for their services) have increased, utilization rates have gone down slightly because of lower activity. Add in the uncertainty still lingering after the Deepwater Horizon oil spill, and it's no surprise that the market hasn't paid much attention to the stock until very recently.  

However, recent drilling success in areas like East Africa, along with increasing activity in other areas like the Black Sea and Falklands give the company reason for optimism.

The industry as a whole is primed for an uptick

In fact, the industry anticipates spending close to half a trillion dollars on exploration and production in the coming year. And with companies like ExxonMobil and Chevron leading the way, it's hard to believe this is just a hunch.  

This marks a huge shift from the cautious spending of the past few years. What's more, with experts forecasting that the current price of oil is sustainable and set to increase, deepwater drilling should become more profitable.

Shareholders and managers unite

CEO Bruce Streeter is a busy man, serving as both the company's COO and President. But I'm not concerned.

You see, insiders own nearly 10% of GulfMark's outstanding shares. Even better, the company ties compensation to operating income. Together, these two facts ease my concerns about Streeter's multiple roles.

What's more, stock ownership guidelines require management to own a percentage of shares in the company, meaning they have a strong incentive to make good decisions.

Risks to be aware of

Global oil and small-cap companies present their fair share of risks. At GulfMark, there's a few factors to monitor:

  • Spin cycle: This is a cyclical industry, so be prepared for some volatility. However, a long-term pinch in demand could be dangerous.
  • As the world turns: GulfMark will provide global exposure to your portfolio, but this diversity also brings the inherent risks of dealing in foreign economies.
  • Drydocking pay: Drydocking expenses (taking a ship out of water to conduct repairs) are a cost of doing business in this line of work. More drydocking expenses means less work and less money.

Getting more than what you pay for

Valuing an oil services company based on cash flows is tricky given the price of oil, sporadic capital expenditures, and unforeseen incidents like last year's BP oil spill.

Nevertheless, GulfMark's capital expenditures should drop significantly going forward, adding a nice boost to cash flows. The stock trades today at roughly 1.1 times its tangible book value, below the 10-year average of 1.7.

Any increase in demand for oil would boost free cash flow, giving us a fair entry point today for a company with significant growth prospects ahead.

Oil and natural gas are sure to be long-term winners. They're finite resources that will serve a vital role in our global economy for many years to come, and GulfMark Offshore is a strong way to play on that outlook.

This, of course, isn't the only way to play energy right now. Next we'd like to share with you a drilling contractor that has a lot of investors nervous -- meaning opportunity abounds.

Click below for my colleague Jim Mueller's top energy stock.

A Drilling Contractor Everyone Loves to Hate

By Jim Mueller 

Transocean [NYSE: RIG] is now notorious for being the company that operated the fateful Deepwater Horizon drilling rig for BP.

But it's much more than that.

Transocean is the world's largest offshore drilling contractor with 140 rigs operating around the world. Locations include Africa, the North Sea, South America, Southeast Asia, and of course the Gulf.

It contracts the operation of these rigs to oil companies like BP, ExxonMobil, and Anadark. These companies pay Transocean a dayrate ranging from $50,000 to $650,000 per day, depending on the type of rig. Ultra-deepwater rigs (those that can drill in water up to 40,000 feet) command the most, while standard jackups command the least.

Transocean provides a compelling opportunity to take advantage of some really low market expectations.

The world's demand for oil is not declining despite what happened in the Gulf, and Transocean will continue to play a leading role in extracting it while adapting to new regulations.

Warren Buffett reminds us that we pay a hefty price for a cheery consensus. There is definitely no cheery consensus surrounding Transocean today, but waiting until the risks are resolved will not serve us well.

There's one more energy stock that would make a solid addition to your portfolio today. It's a dominant player in its specialty, and without it, most oil and gas companies wouldn't be able to operate.

Click below for my colleague Bryan White's energy stock.

Oil & Gas Depend on This Company

By Bryan White 

Since the financial crisis of 2008, spending on exploration for oil and gas has dried up.

But after two years of lackluster spending, and with oil flirting with $100 a barrel, I expect oil companies to aggressively begin spending on exploration.

Which is where my energy stock, Schlumberger [NYSE: SLB], comes in. It provides the picks and shovels these oil and gas companies need.

But I keep coming back to Schlumberger, despite the run it's been on, as a stock to buy before the next wave of exploration spending begins.

Why Schlumberger?

Schlumberger is the clear leader in oilfield services in terms of size, scope, and technology, and it's in a superior position to benefit from a ramp up in oil exploration spending.

The company's size -- which dwarfs its nearest competitors Halliburton, Baker Hughes, and Weatherford -- makes it a key partner for the largest oil companies in the world. And it helps produce the most attractive profit margins when business is booming.

National and major public integrated oil companies will likely be aggressive investors in the next spending cycle, which I expect to occur in international oilfields and deepwater drilling.

This scenario puts Schlumberger in the sweet spot, since it's a one-stop shop with close ties to national oil companies. Schlumberger is one of the few companies with the ability to integrate technology, from seismic all the way to well completion, in one integrated package, which attracts large oil companies.

What's more, the company's focus on international operations is a hidden catalyst as customers ramp up spending. After all, international rig counts recently reached an all-time high.

Schlumberger's geographical reach, which put it at a disadvantage to competitor Halliburton over the past year as spending heated up in North America, should reverse as the exploration focus shifts overseas. With more than 40% of sales coming from exploration and roughly a third of that from international markets, Schlumberger is poised to grow its share of oil services revenue.

Schlumberger's size has also differentiated it from its peers thanks to its clear technological lead -- plus a research and development budget that's larger than that of its three closest competitors combined.

The bulk of service and equipment spending over the past year came from gas shale plays in North America, where independent exploration and production companies spent primarily based on equipment price versus quality.

This should reverse as Schlumberger's major customers beef up spending in harder to reach places like the deep waters off the coasts of West Africa and Brazil.

Oil is not getting any easier to find, and Schlumberger's strong technological lead will be key in the next spending cycle.

3 critical elements to the thesis

  1. The price of oil does not need to reach $140 a barrel again for this investment to work out. All we need is stability above $75 a barrel for oil companies to bring exploration spending back online.
  2. Schlumberger brings in about a third of its revenue from international markets, which are at an all-time high in terms of rig counts. International exploration spending typically lags that in North America at the beginning of a cycle. Brazil, the Middle East, and Africa are key regions where activity is expected to be robust and growing.
  3. Margin expansion. Schlumberger's strongest margins come from its international business, which should expand over the next few years. As an added kicker, margins in North America should rebound after the company has reorganized its fragmented operations domestically, and the recent wave of mergers and acquisitions will bring larger players to North America -- Schlumberger's primary customer base.

What could go wrong?

Schlumberger should gain market share and expand its profit margins as exploration spending heats up.

Economic growth from emerging markets like China and India should support oil demand, but a major economic meltdown would curb the spending cycle -- or at least shorten the duration. The broader economy is a huge factor here.

Political and operational risk is always high. Iraq is a key region in the Middle East, as it boosts production and is expected to absorb a good deal of capacity. This will be a key component of margin expansion internationally.

Growth overseas may also stall as projects that were put on hold in 2008 take longer than expected to restart.

But at the end of the day...

I expect this to be a solid pick for the next few years.

As a special thank you for reading this report, we'd like to share with you one more oil and gas company -- handpicked by Motley Fool Co-founder Tom Gardner. Simply click below to read more.  

Tom Gardner's Top Oil Play

The three companies you just read about are all great picks that would make solid additions to your portfolio.

Now we'd like to share with you one more company. It's a company Motley Fool Co-founder and CEO Tom Gardner recommended to subscribers of our Motley Fool Stock Advisor newsletter.

The company isn't an oil producer like BP, and it's not a driller like Transocean.

Instead, after hundreds of mergers spanning more than 100 years, it's the largest equipment maker and distributor to the energy industry.

In fact, it sells and services just about any and every product for oil and natural gas drilling -- complex deepwater drilling rigs, small spare parts, and everything in between.

"No other vendor"

That's how workers in the field describe this company. This dominance is also why Tom Gardner likes this company. He also likes that its size gives it advantages of scale.

And, as with the other three companies you just read about, higher oil prices will bring more drilling, which will flow through as demand for this company's goods and services.

We can't wait to share with you this company's name and ticker symbol, along with all the important details you need before you invest in it. But out of respect for our members, I have to give you this information in the form of a brand-new research report...

It's called, "Tom Gardner's Top Oil Play." And it's YOURS FREE for the asking! Here's how...

Accept This 100% RISK-FREE Offer to Join Tom and his brother, David Gardner, at Motley Fool Stock Advisor

I hope you've enjoyed this special report as much as we enjoyed preparing it for you.

Now let me introduce myself. My name is Mark Brooks. I'm the executive publisher of Motley Fool Stock Advisor.

As you may know, it's our passion at The Motley Fool to help individual investors build lasting wealth with the very best investments, like the 3 stocks to ride oil higher you just read about.

That's why I would like to rush you a copy of "Tom Gardner's Top Oil Play" right now... for FREE...

But that's not all...

I'd also like to send you a free copy of Stocks 2013: The Investor's Guide to the Year Ahead. In this, you'll find 12 powerful stocks you can use to add diversity to the foundation you'll build with these three stocks -- and profit in the coming year.

Combined with the lessons, strategies, and uncommon market wisdom you'll receive as a member of Stock Advisor, and ALL the stocks you'll have in just minutes, these 12 top stocks in this exhaustive equity research report set you up with just about everything you need to make this the year you BEAT UP on the market!

Special Offer -- Save 60%
Motley Fool Stock Advisor

Stocks 2012

Limited Time Offer -- Save 60% on Stock Advisor with this special sale today, and get your copy of Stocks 2013: The Investor's Guide to the Year Ahead -- a $99 value, FREE!

What Investors Like You Are Saying About Stock Advisor...

"Bought 3x as much house..."
"I manage a small brokerage account for my parents. Dad was changing jobs to a position that required him to buy a house... Thanks to the appreciation in Marvel, they were able to buy 3x as much house -- free and clear -- as initially budgeted."
-- Michael M., Windermere, FL

The secret to a stable financial future
"My future looks tremendously more stable since I created my Stock Advisor 'personal mutual fund.' I buy every recommendation, every month, and the returns have been far beyond what I could have achieved without the help."
-- Randy T., Seattle, WA

Averaging 66% in 3 years
"I rolled over an employee sponsored IRA and invested in Stock Advisor picks and have averaged 66% return in 3 years. Way better than the managers at the employer's mutual funds!!"
-- Mary C., Lima, OH

"Made substantial returns..."
"Through Stock Advisor I've discovered companies like LabCorp, Activision, Garmin, and Marvel, and I've gotten some substantial returns in the process."
-- Lisa S., Phoenix, AZ

Hearing about rock-solid opportunities like these early is why year after year investors have gladly paid $99 for this valuable report -- but you can have it right now for free!

Here's how:

Join me alongside Motley Fool Co-founders David and Tom Gardner at Motley Fool Stock Advisor at the special reduced rate for new members. An entire year of honest, straightforward advice along with stock recommendations for more than 50% OFF!

Here's how it works...

Every month, you'll receive the Motley Fool Stock Advisor advisory letter in the mail. You'll even be alerted by email the moment it is available online, so you can access it instantly.

Each Stock Advisor issue reveals not one but two TOP stocks -- handpicked and thoroughly researched by David and Tom Gardner -- that are poised to CRUSH the S&P 500 over the next three years.

You also get the full rationale behind every recommendation, including any potential risks, so you'll have everything you need to make your own sound investment decisions.

Plus, when you accept this special invitation for first-time subscribers to the Stock Advisor community today, you'll also receive these features, benefits, and bonuses:

Live Interactive Stock Scorecard -- Our scorecard lets you keep track of how we're doing relative to the S&P 500 and how David and Tom are doing against each other. You'll receive a scorecard in each printed issue. And the scorecard is online as well, where it's constantly updated throughout the trading day. You can click through to get more information on all our picks, including back issues, updates, discussion boards, and much more.

Weekly Updates -- We'll send you updates every week so you get all the important information you need to know about right away -- from buying and selling a stock to our analysis of a specific development. You'll also have access to all previous updates on our members-only website.

All Back Issues -- Every back issue of the newsletter is archived on the site, so you can read every recommendation we've ever published.

Discussion Boards -- Where else can you learn about a stock directly from the candid experiences of the company's employees, customers, and investors? I don't know of any other newsletter or investment advisor or brokerage house that would welcome this type of frank exchange between its customers. But it's all part of the philosophy here at The Motley Fool.

I've been told by some members that Motley Fool Stock Advisor is like an investment university. It's certainly an active community of smart investors. You can join David and Tom Gardner -- and your fellow members -- online in spirited discussions. Or you can sit back and simply follow the wealth-building recommendations...

Some advisory services charge hundreds of dollars for access to their "premium" services. But access to our world-class, members-only website... and all its powerful moneymaking resources... is yours today at a DEEP DISCOUNT...

When you join today, an entire year of Motley Fool Stock Advisor only costs you $79. That's a savings of more than 50%.

Plus, "Tom Gardner's Top Oil Play," a $29 value, is yours completely free. In addition to that, Stocks 2013: The Investor's Guide to the Year Ahead, a $99 value, is also yours FREE the instant you sign up!

And if saving $100 off the regular membership rate and receiving our $29 "Tom Gardner's Top Oil Play" report and our $99 Stocks 2013: The Investor's Guide to the Year Ahead report, free, is something you like -- HERE'S AN EVEN BETTER DEAL!

If you join us right now through this special offer -- because this is only available for a limited time to new members -- I'll send you a bundle of timely investment reports, valued at more than $100, also for free! MAKING THIS SPECIAL OFFER EVEN BETTER!

Grab your FREE bundle of exclusive Stock Advisor investment reports (valued at $87) today!

6 Danger Signs in 5 Minutes

6 Danger Signs in 5 Minutes -- (a $29 value -- YOURS FREE!)

These quick and easy checks will help you sniff out "creative accounting," fictitious revenue, and other ways companies can seek to deceive their stockholders. These shortcuts will help you cut through balance-sheet chicanery like a laser.

How to Know When to Sell

How to Know When to Sell -- (a $29 value -- YOURS FREE!)

David and Tom don't believe in selling before a company's fundamentals change dramatically (or you find an even better company). But it is necessary now and then. In this special report, "How to Know When to Sell," they reveal their simple, easy methods for quickly assessing your stocks, based on fundamentals.

Investing the Stock Advisor Way

Investing the Stock Advisor Way -- (a $29 value -- YOURS FREE!)

What's the secret formula behind Stock Advisor's success? David and Tom Gardner reveal all in "Investing the Stock Advisor Way." Discover the strategies The Motley Fool co-founders use to pick so many triple-digit winners and help their readers beat the market by 66 percentage points. Inside this special report you'll learn the full details of their 7 key investment principles, plus the individual stock-picking rules they follow to uncover their biggest wins. If you're serious about your investments (and who isn't these days?), this is one report you won't want to miss.

These three reports, along with "Tom Gardner's Top Oil Play," plus Stocks 2013: The Investor's Guide to the Year Ahead, are yours free the instant you sign up! PLUS here's why you can join us at Stock Advisor today with complete confidence:

Your special "keep everything" & "lose nothing" DOUBLE GUARANTEE

Because we stand behind every piece of advice, insight, and recommendation -- I'd like to offer you the opportunity to position yourself to make a pile of money and soak up all the recommendations that Motley Fool Stock Advisor has to offer -- WITHOUT ANY RISK WHATSOEVER. Here's how it'll work...

You can tell me to send your money back, up to the last day of your first month. And I'll give you a COMPLETE REFUND -- NO QUESTIONS ASKED.

The report "Tom Gardner's Top Oil Play"... The new special report, Stocks 2013: The Investor's Guide to the Year