In the booming energy sector, oil and natural gas prices are currently climbing every trading session. It's not every day that one sees the price of oil topping $105 per barrel. So is there a way to make some money from this phenomenon?
One way is to avoid the shares of energy companies themselves – which seem to wax and wane with every oil and gas price change – and consider a more steady alternative (price-wise): energy-service stocks.
Oil-service companies don't own the oil or the acreage they work on; they're contracted to do seismic work, analyze results after a well is drilled and carry out a number of other needed tasks. Energy-service companies also supply the parts and equipment needed by the drillers. To make their services affordable and worthwhile for clients, they must develop and use the latest technologies.
So, let's take a look at Baker Hughes Inc., an oil-services giant that specializes in hydraulic "fracking" and horizontal drilling.
In fracking highly pressurized liquid (usually water mixed with sand and chemicals) is injected at the drilling site to create a small fracture (typically less than 1 mm), along which gas and oil flow into the well. This technique is most commonly utilized in the booming shale gas and oil extraction industry.
With its impressive revenue stream, cash-rich Baker Hughes can stay at the cutting edge of this industry's technology. For example, the company's proprietary "Hughes Christiansen Talon 3D" drill bit is optimized for curve and/or lateral drilling – and is much in demand these days.
Baker Hughes focuses on taking the parts used in daily energy production, and making them better, cheaper and more efficient. What's more, the company pays out a dividend of 1.26 per cent.
In my opinion, that justifies investors drilling down into the company essentials further, with an eye to perhaps buying its shares.
For more investing ideas from Murray Soupcoff, follow him on StockTwits.