Which stocks are looking fine in ’09? Discover all our Foolish ideas for The Best Stocks for 2009.
Confession time, Fools. I almost abandoned my beloved energy sector in this annual exercise, in which we scour the markets for next year's winners. Yes, I'm that spooked.
Can you blame me? Oil prices have fallen approximately $100 from their summer peak. In an ordinary year, this would translate to getting paid to drive our cars and heat our homes with the stuff, as oil would have a negative value. But 2008 was no ordinary year, was it?
As I've been documenting over the past few months, more and more energy projects are getting pulled. With cancellations from StatoilHydro
So yes, I'm scared. I see 2009 budgets getting slashed to the point where growth through exploration drilling is becoming a luxury, rather than the norm. I see pricing power dissipating for oil service players as global development is dialed back and big players like Saudi Aramco and Petrobras
I'm a huge fan of offshore drillers Noble
That brings us to Core Laboratories
Core Lab is in the reservoir optimization game. That means analyzing drill core (hence the name) and the various fluids (oil, gas, and water) produced by a well. The latter is an ongoing process as an oilfield matures. As oil prices plunge, I would think the world's major producers have to be as focused as ever on getting the most out of existing assets.
In addition to helping the majors get the most out of their legacy oil fields, Core Lab also does a brisk business in fracture diagnostics. We've observed a paradigm change in the North American onshore market in favor of horizontal drilling. Multi-stage fractures, which free up gas flows along the horizontal section of a well, are a key contributor to the ripping results recently reported by Petrohawk Energy
Did I mention that Core Laboratories is ridiculously profitable? The company generated a return on equity over the trailing twelve months of over 140%. Free cash flow far exceeds the firm's reinvestment requirements, and that excess cash consistently gets plowed into share repurchases. Core Lab has bought back boatloads of stock while maintaining a comfortable net debt position. The firm also recently instituted a quarterly dividend, in case buybacks alone don't float your boat.
I like this company a whole lot, but more importantly, so do the firm's customers. Core Lab noted recently that one oil major is going to specify the firm's perforating charges for all of the company's shale gas wells worldwide. Core Lab also scores very high in industry customer satisfaction surveys.
2009 will be challenging for just about everyone in the energy space, but Core Lab appears to be uniquely well-positioned to weather the storm. With the shares already slashed by over 60%, I think this stock offers the sort of opportunity you've been waiting for.