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 (UNKNOWN:CJES.DL)
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:
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 (UNKNOWN:EROC.DL)
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 (NASDAQOTH:LINEQ) 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.
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.
Fool contributor Matt DiLallo owns shares of LINN Energy, LLC. The Motley Fool recommends Halliburton and Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. 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.