We recently published a list of The 10 Best Oilfield Services Stocks to Buy NowIn this article, we will look at how Natural Gas Services Group, Inc. (NYSE:NGS) compares to the other stocks in the Oilfield Services sector.
Brent crude oil prices have fallen from over USD 90/bbl in April to below USD 80 per barrel, reflecting lower demand for oil, growing global inventories and a decline in geopolitical risks. Prices were highly volatile in the first half of the year due to rising geopolitical tensions, production cuts by OPEC+ members and signs of strengthening global industrial production.
Global oil demand is slowing, reflecting difficulties in the global economic landscape, particularly the slowdown in China’s economic growth. Given the slowdown, oil prices settling above the $70 per barrel mark are likely to be a boon for the oilfield services sector, which is heavily dependent on oil and gas prices.
The oilfield and services sector consists of companies that help companies explore for and produce oil and gas. Therefore, the best oilfield services stocks are those of companies that help produce, repair, and maintain wells and drilling equipment. The companies win billion-dollar contracts from integrated energy companies as well as independent and national oil and gas companies.
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When crude oil prices rise and remain well above the $70 per barrel mark, upstream companies increase spending on exploration and drilling activities, which benefits oilfield service providers. Higher spending leads to higher revenues and profit margins.
With oil prices holding above the $70 per barrel mark, the oilfield services sector is expected to grow at a compound annual growth rate of 5.83% to reach $119 billion by 2024. The robust growth is due to rising expectations for increased development of gas reserves and advanced technology.
While oil prices averaged $77 per barrel in 2023, persistent high inflation of over 4% was one of the reasons why oilfield services remained under pressure, as upstream companies refrained from undertaking major exploration and development projects.
As a result, the oilfield services sector as a whole delivered a year-over-year return of -11.8%, lagging the S&P 500, which gained about 26%. The sector lost about 3.87% for the year, lagging the S&P 500, which gained about 17%.
While the underperformance is a concern, it provides an ideal entry point for buying the best oilfield services stocks, as most of them appear to be trading at a discounted value.
The global upstream industry is expected to keep its hydrocarbon investments at around $580 billion in 2024, up 11% year-on-year. Likewise, the expected investments should be a reason for investors to keep a close eye on the best oilfield services stocks that are now trading at discounted valuations.
The second quarter saw increasing momentum in various parts of the oilfield services sector as the U.S. economy slowed.
“The four major oilfield services companies are well positioned to benefit from the multi-year global upswing in E&P spending and rising demand for energy services and technology,” wrote Evercore analyst James West. “Strong earnings growth and margin improvement will be 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 looked for the most significant oil and gas equipment and services companies and those with significant upside potential based on average analyst 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 bought those stocks during the same reporting period. Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (Further details can be found here).
An aerial view of a natural gas compressor station with its miles of engines and pipelines.
Natural Gas Services Group, Inc. (NYSE:NGS)
Hedge fund holdings: 10
Share price potential as of December 8, 2024: 45.45%
Natural Gas Services Group, Inc. (NYSE:NGS) is an oilfield services company that provides natural gas compression equipment and services to the major energy industry in the United States. The company manufactures and sells natural gas compressors for oil and gas production and also provides aftermarket services.
In the first quarter, Natural Gas Services Group, Inc. (NYSE:NGS) reported a 48% increase in rental income to total $33.7 million and net income tripled to $5.1 million, or $0.41 per common share.
Rental fleet utilization is a key factor in assessing the success of Natural Gas Services Group, Inc. (NYSE:NGS). This number shows the efficiency with which the company uses its rental compressor equipment to generate revenue.
Last year, it reached a high of 80.8%, confirming the company’s ability to generate optimal returns from its assets. When looking at the company’s revenue growth last year, it is clear that the company has experienced an impressive increase of 44%.
This solid trend has enabled Natural Gas Services Group, Inc. (NYSE:NGS) to increase its total revenue by 92% over the past three years, with revenue expected to increase by 18% in the coming year.
With the industry expected to grow by only 9.5%, Natural Gas Services Group, Inc. (NYSE:NGS) is in a good position to deliver better top-line results.
The stock has a consensus rating of “Buy” on Wall Street with a price target of $28, implying an upside potential of 45.45% from current levels. Natural Gas Services Group, Inc. (NYSE:NGS) is up about 26% year to date. 10 out of 920 hedge funds tracked by Insider Monkey held shares in the company at the end of the second quarter of 2024.
Palm Valley Capital Management made the following statement regarding Natural Gas Services Group, Inc. (NYSE:NGS):
“The only position that negatively impacted full-year 2023 returns by at least 10 basis points was Natural Gas Services Group, Inc. (NYSE:NGS). We sold NGS earlier this year after management presented a growth plan that included significant new loans. This violated our internal policy of not holding companies with significant operational and financial risk.”
NGS total 6th place in our list of the best oilfield services stocks to buy. While we recognize the potential of NGS as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you are looking for an AI stock that is more promising than NGS but trades at less than 5 times its earnings, read our report on the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.
