C&J Energy Services Inc (CJES), Heckmann Corporation (HEK): As Natural Gas Inventories Plunge, Investors Should Buy Oil Service Stocks

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C&J Energy Services Inc (NYSE:CJES) – the hydraulic fracturing services sector is very fragmented, but this company is a leading independent provider. C&J Energy Services Inc (NYSE:CJES) now has a market cap below $1 billion and a revenue base of over $1.2 billion. The company is also very profitable having earned $3.76 in 2012 with forecasts of making nearly $3.00 each of the next two years.

The stock has consistently traded in the $20 range after dropping from a peak over $30 around when the stock went public back in the summer of 2011. With the stock currently trading at the low end of the range, investors can scoop it up as sentiment is negative.

Heckmann Corporation (NYSE:HEK) Corporation – the company recently completed a merger with Power Fuels to create the leading environmental services provider in the energy sector. Heckmann Corporation (NYSE:HEK) has a market cap of around $1 billion with a revenue base approaching $800 million. The company is changing its name to Nuverra Envrionmental Solutions to better create a brand around the focus of the company.

The merger expanded the firm into the Bakken shale and now allows it to become a solution provider in all of the leading shale areas. The stock currently trades below $4 and has flat lined in that area since the merger with Power Fuels greatly improved the profitability of the firm.

U.S. Silica Holdings Inc (NYSE:SLCA) – unlike the other oil service stocks, U.S. Silica Holdings Inc (NYSE:SLCA) has been on a tear of lately. The stock trades closer to 52-week highs at around $21 after spending some time below $10 in the summer last year.

The company has a revenue base of around $550 million with a market cap of over $1.1 billion. It produces the commercial silica used as the sand in the fracturing process along with hundreds of other uses.

Stock Performance

The stock performance of the sector has been horrendous since the start of 2011. The group mentioned above has greatly underperformed the PHLX Oil Service Sector Index during that period.



CJES data by YCharts

Note that U.S. Silica went public during the period.

Bottom line

The combination of natural gas inventories plunging to below average levels and decade lows in rigs directed at natural gas drilling sets up the perfect storm for a rebound in demand for oil services needed to increase drilling.

The above oil service stocks are mostly down over the last year or so. While the stocks don’t provide the same snap back potential as the coal stocks, each has the potential to generate solid gains over the next few years as demand rebounds. In addition, all now operate very profitable business providing downside protection not provided in the general coal sector.

The article As Natural Gas Inventories Plunge, Investors Should Buy Oil Service Stocks originally appeared on Fool.com is written by Mark Holder.

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