This has got to be my favorite part, where the pundits, bank analysts and columnists start to (quietly) revise their views on the oil markets.
One after one, they’re losing their pessimistic views on oil and realizing what we’ve known for the last year: Oil is at the beginnings of another real price boom. Some are even mentioning (heavens!) $100 oil.
So, the analysts are finally catching up. What does that mean for us?
As an investor, if you’re going to take the best advantage of this rally and coming boom, the point is you need to get smarter as the analysts catch up with you. We’ve made solid gains concentrating on U.S. independent E+P’s – names like Hess (HES), SM Energy (SM) and Centennial Resources (CDEV). Now, we’ve got to race further ahead, concentrating on secondary names that the analysts will again be slow in figuring out. Every time we stay ahead of the other guys, we’ll be first at the table as the meal is just served, and not coming late, picking over the leftovers.
That’s why I’m getting excited about lagging oil services companies. They’ve had perhaps an even more difficult time in the last four years, not only losing work in the field but being forced to slash their prices across the board. Consequently, oil services stocks have, if anything, even worse looking profiles (and charts) than most of their E+P company clients. But there are indications that they are about to participate in the oil price boom.
Foremost are employment and wage numbers, always a forward-looking indicator of the health of oil services companies. In the latest Dallas Fed report, we’ve finally gotten that indication that wages for pump operators, cementers and other base services jobs are on the rise again.
And we’re not just going to buy any oil services company. There won’t be a recommendation for the OIH or some other ETF. Just like with the E+P players, we’re going to want to concentrate on specific stocks in specific sub-sectors of oil services. And just as we concentrated on independent US E+P’s to find the best opportunities in production, we’re going to begin our investing in oil services companies that focus on the same sub-sector specific to horizontal drilling in the strongest shale plays, including the Permian basin. I’ve isolated two areas of concentrations, and two names – but I’ll be talking about more in the coming weeks:
First is Emerge Energy Services (EMES), a frac sand supplier. There are indications that sand supplies will continue to tighten, and with tighter spacing and longer laterals being the order of the day in shale wells, the price and costs of sand services are going to continue to increase. We’re looking for a bit more weakness under $9 for an entry point for a long-term investment in Emerge. The second is Pro Petro Services (PUMP), a frack specialist and recent IPO from March of last year. PUMP may be providing a more important opportunity right now, as it has taken a hit recently from a bad quarterly report from another frack specialist, RPC, inc (RES). Finding any weakness in PUMP shares since last fall has always turned out to be an opportunity to buy. One other, more stalwart name I’m looking at is Helmerich and Payne (HP).
Now’s the time to turn our target sights on oil services and try to generate the same kind of returns as we have begun to see with our E+P’s over the last 4 months.
By Dan Dicker
