As I write this, the price of crude oil tops $100 a barrel, and we're all generally calm about that number. A year ago, when that same barrel was $80, or three years ago, when it sold for roughly $56, the thought of triple-digit oil was panic-inducing. But with current prices down approximately $40 from their peak earlier this year, it's clearly all a matter of perspective.
Still, Fools should accept that relatively high crude prices -- perhaps far higher than today's -- are here to stay, which makes learning more about the oil industry a potentially profitable move.
I think that energy's most compelling names, and its best prospects for stability, lie within the oilfield-services subsector. Since nearly everyone knows about bigger names like Schlumberger
Superiority first
We'll start with Louisiana-based Superior Energy Services
Like most of its rivals, Superior's shares have fallen along with oil prices, down 40% since June. Nevertheless, the company's expected to improve last year's $3.35 a share in earnings by nearly 25% this year, with nearly 20% following in 2009. Despite those rosy projections, its fat 28% operating margin, and a healthy 32% return on equity, Superior shares trade for only around seven times forward earnings. The table below shows how Superior stacks up against similar companies.
Metric |
Superior |
NATCO |
Unit |
---|---|---|---|
Market Cap |
$2.8B |
$824.6M |
$2.5B |
Forward P/E |
7.1 times |
12.5 times |
6.4 times |
Operating Margin |
28.2% |
10.6% |
37.9% |
ROE |
32.1% |
16.9% |
21.5% |
EBITDA |
$670.3M |
$73.4M |
$705.8M |
Total Debt/Equity |
0.62 |
N/A |
0.07 |
Sources: Yahoo! Finance and TMF calculations at close Sept. 25, 2008.
Just one from Houston
Then there's Houston-based NATCO Group
Unlike most other energy companies, debt-free NATCO hasn't been hit by the peak-and-trough chart pattern that typically follow declines in oil prices. Instead, its share price peaked late in 2007, and it's slipped about 28% since then. The company trades at roughly 13 times its expected 2009 earnings, which are projected to rise roughly 27% from this year's.
One solid Okie Unit
Tulsa-based Unit
Unit's chart pattern is in line with most oil and gas companies since midsummer: The company hit its high in early July, and it has slid more than 35% since. The half-dozen analysts who follow the essentially debt-free company expect it to grow its earnings about 7% in 2009. Based on those projections, the company trades at a forward multiple P/E near 6.5.
Where should Fools focus?
I'll be candid here: Given its earnings growth expectations, the balance of its businesses, and its margins, my favorite of the above trio is Superior. However, having once followed Unit, I know it's also a solid, well-run company. On those bases, I'd keep an especially careful eye on both of them.