We recently compiled a list of the 10 Best Oilfield Services Stocks to Buy Now. In this article, we are going to take a look at where Natural Gas Services Group, Inc. (NYSE:NGS) stands against the other oilfield services stocks.
Brent crude oil prices have dropped below $80 per barrel from more than $90/bbl in April because of reduced demand for oil, growing worldwide stockpiles, and a decrease in geopolitical risks. In the first half of the year, prices were extremely volatile owing to rising geopolitical tensions, reductions in production by OPEC+ members, and indications of strengthening worldwide industrial production.
Global oil demand is decelerating, mirroring difficulties in the worldwide economic landscape, especially the reduction in China’s economic expansion. Amid the deceleration, oil prices finding support above the $70 barrel should be a boon for the oilfield service sector, which is highly dependent on oil and gas prices.
The oilfield and service sector is made up of companies that offer assistance to companies involved in the exploration and production of oil and gas. Consequently, the best oilfield services stocks to buy are of companies that assist in the production, repair, and upkeep of wells and drilling machinery. The companies receive multibillion-dollar contracts from integrated energy firms and independent and national oil and gas companies.
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When crude oil prices rise and remain well above the $70 barrel level, upstream companies’ ramp up spending on exploration and drilling activities, benefiting oilfield services companies. Increased spending translates to improved revenues and profit margins.
With oil prices finding support above the $70 per barrel level, the oilfield services sector should grow at a compound annual growth rate of 5.83% from $119 billion as of 2024. The robust growth is attributed to rising expectations of increased development of gas reserves and advanced technology.
While oil prices averaged $77 a barrel in 2023, persistently high inflation above 4% was one of the reasons that the oilfield services remained under pressure. That’s because upstream companies refrained from pursuing mega exploration and development projects.
Consequently, the overall oilfield service sector had a one-year return of −11.8%, underperforming the S&P 500, which was up by about 26%. The sector is down by about 3.87% for the year, underperforming the S&P 500, which is up by about 17%.
While the underperformance is a concern, it provides an ideal entry-level for the best oilfield services stocks to buy now, as most appear to be trading at a discounted valuation.
The global upstream industry is expected to maintain its hydrocarbon investment at about $580 billion in 2024, representing an 11% year-over-year increase. Likewise, the expected investments should make the case for investors to pay close watch to the best oilfield services stocks to buy now, trading at discounted valuations.
The second quarter showed growing momentum across different verticals in the oilfield services sector amid a slowdown in U.S. activity.
“The four major oilfield service companies are well-positioned to benefit from the multi-year global upcycle in E&P spending and the increasing demand for energy services and technology,” Evercore analyst James West wrote. “Strong earnings growth and margin expansion are being driven by international and offshore markets.”
Our Methodology
We used Yahoo Finance’s Screener to compile the list of the best oilfield services stocks to buy now. We scanned for the most significant oil & gas equipment & services companies and those with a substantial upside potential based on analysts’ average price targets. Once we had a consolidated list, we selected and ranked the stocks based on their upside potential.
We also mentioned the number of hedge funds that had bought these stocks during the same filing period. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An aerial view of a natural gas compressor station, its engines and piping stretching for miles.
Natural Gas Services Group, Inc. (NYSE:NGS)
Hedge Funds Holding Stakes: 10
Stock Upside Potential as of 12/08/2024: 45.45%
Natural Gas Services Group, Inc. (NYSE:NGS) is an oilfield services company that offers natural gas compression equipment and services to the more significant energy industry in the US. It fabricates and sells natural gas compressors for oil and gas production while providing aftermarket services.
In the first quarter, Natural Gas Services Group, Inc. (NYSE:NGS) delivered a 48% increase in rental revenue that totaled $33.7 million, and net income tripled to $5.1 million or $0.41 per basic share.
Rental fleet utilization is a key factor in assessing Natural Gas Services Group, Inc. (NYSE:NGS) ‘s success. This figure shows the efficiency with which the company uses its rental compressor assets to generate revenue.
It reached highs of 80.8% last year affirming the company’s ability to generate optimum revenues from its assets. Upon examining the company’s revenue growth over the past year, it’s clear that the company experienced an impressive surge of 44%.
This solid recent trend also enabled Natural Gas Services Group, Inc. (NYSE:NGS) to boost its total revenue by 92% over the previous three years. Looking ahead, revenue is expected to increase by 18% in the upcoming year.
Given that the industry is anticipated to only see a growth of 9.5%, Natural Gas Services Group, Inc. (NYSE:NGS) is in a favorable position to achieve a more robust revenue outcome.
The stock commands a consensus Buy rating on Wall Street with a $28 price target, implying a 45.45% upside potential from current levels. Natural Gas Services Group, Inc. (NYSE:NGS) is up by about 26% for the year. 10 out of 920 hedge funds tracked by Insider Monkey held stakes in the company as of the end of Q2 2024.
Here is what Palm Valley Capital Management stated the following regarding Natural Gas Services Group, Inc. (NYSE:NGS):
“The only position negatively impacting full year 2023 returns by at least 10 basis points was Natural Gas Services Group, Inc. (NYSE:NGS). We sold NGS earlier in the year after management laid out a growth plan that included meaningful new borrowings. This violated our internal policy of not holding companies with significant operating and financial risk.”
Overall NGS ranks 6th in our list of the best oilfield services stocks to buy. While we acknowledge the potential of NGS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NGS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
