There are innumerable ways to ascertain a company’s strength and attractiveness as a potential investment. For starters, there are metrics of virtually all shapes and sizes, along with judgments about management’s apparent capabilities and vision, an understanding of the corporation’s history, and finally — but hardly least — a familiarity with the current micro and macro trends in the industry in which it operates.
But think about it: The one item that, at least in theory, bakes in all of the above — and then some — is its overall analyst recommendation, which you can easily find on Yahoo! Finance. That number is simply a weighted average of the ratings of all the analysts who follow a given company. It’s arrived at by ascribing a “1” to a strong buy, a “2” to a buy, a “3” to a hold, and so on. On that basis, the lower the weighted average, the better. A weighting at or below “2” serves as something of an inflection point, where the most compelling companies reside.
For instance, in the oil-field services sector, National Oilwell Varco, Inc. (NYSE:NOV), the popular and rapidly expanding maker of equipment for drilling rigs, sits right at 2.0. Schlumberger Limited. (NYSE:SLB), the biggest — and many think the best — member of the sector sports a 1.7. But Houston-based Flotek Industries Inc (NYSE:FTK), a small-cap ($686 million) provider of services to oil and gas operators sits atop the heap with a can’t-be-improved-upon 1.0.
Admittedly, that number emanates from the work of just four analysts, 30 fewer than those who ante up ratings on Schlumberger Limited. (NYSE:SLB). But, as an erstwhile analyst, I find the conclusions of four professionals — who have figuratively consumed hours, or even weeks, under the hood of Flotek, spent time with management, and are conversant with the services group widely defined — to constitute a good starting point in assessing the company’s value.
What’s Flotek actually do?
Flotek operates in three key areas in assisting producers of various sizes, other services companies, and drilling contractors in their daily tasks:
Its chemicals and logistics division develops and manufactures specialty chemicals that find application in the stimulation, cementing, and blending of oil and gas wells.
The drilling products division designs, manufactures, and repairs downhole drilling tools. In addition to oil and gas producers, the unit serves the mining and water industries.
Flotek’s artificial lift division provides pumping system components that include electrical submersible pumps, gas separators, and production valves.
As one who spends substantial time considering the large capitalization likes of the abovementioned Schlumberger Limited. (NYSE:SLB) and National Oilwell Varco, Inc. (NYSE:NOV)– and given my conviction that, in an economy that’s probably more precarious than many investors realize — I’m convinced that being overweighted in energy is appropriate in today’s world. Beyond that, a smaller-capitalization, albeit high-quality, company like Flotek can add a desirable element of balance to a Foolish energy portfolio.
