"The energy sector has been the U.S. stock market's best performer over the past three and five years -- and among the best so far in 2007," says Richard Moroney in his Upside newsletter.
He says, "Shares of energy companies, especially equipment and services concerns, seem unduly cheap -- even if per-barrel oil prices retreat by $10 or $15." Here he looks at Gardner Denver Inc. (NYSE: GDI) and NATCO Group Inc. (NYSE: NTG).
"Over the last three years, spending on capital expenditures has grown at an impressive 28% annual clip. Even if oil and gas prices drop sharply, which seems unlikely given supply and demand forecasts -- capital spending should remain robust.
"Gardner Denver is one of the largest providers of reciprocating pumps used in oil and gas drilling and production. For full-year 2007, management lifted its per-share profit guidance to a range of $3.10 to $3.18, up from the $2.49 earned in 2006. Gardner Denver, positioned to exceed consensus profit estimates, is a Best Buy.
"NATCO makes products that help filter impurities from oil and gas. NATCO services both onshore and offshore fields in most major producing regions. Robust exploration and production spending by customers should sustain strong demand for filtration equipment.
"Considering NATCO's growth prospects, debt-free balance sheet, and cash of $2.50 per share, the stock seems undervalued at 17 times estimated year-ahead earnings of $2.67. NATCO is being upgraded to Best Buy.
Moroney also publishes the blue-chip oriented Dow Theory Forecast, which selects Oceaneering International (NYSE: OII) as its latest featured recommendation. He explains, "Oceaneering provides technical equipment and services to oil-and-gas companies that operate offshore, specializing in deepwater applications.
"Oceaneering is the leader in remote operated vehicles (ROVs), controlling more than a third of the market. In the June quarter, Oceaneering put 13 new ROVs in service to meet growing demand, ending the quarter with a fleet of 202 vehicles.
"Even if oil and natural-gas prices decline in the year ahead, pilfield-services companies that operate in deep waters should retain a competitive advantage. Oceaneering is has our top long-term Focus List Buy rating."
Each day, Steven Halpern's TheStockAdvisors.com features the latest investment commentary and favorite stocks of the nation's leading financial newsletter advisors.
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