5 great fracking stocks made in America
The US hydrocarbon rush is on and these companies are positioned to reap the profits.
By Michael Shulman
The U.S. is expected to be the world's largest energy producer by 2017, and energy-independent a few years after. Today it is already a net refined petroleum products exporter. Why? How? Fracking -- or hydraulic fracturing, the cracking open of previously "too hard to drill" shale formations.
The U.S. has more known shale formations with production possibilities than any nation on earth. The U.S. Geological Survey just doubled estimates for the formations in North Dakota, now the second leading oil-producing state. Across the country, in Pennsylvania, the Carlyle Group (CG) has invested in a refinery simply to process natural gas liquids (NGL) coming from the gas-rich shale formations in the other part of that state.
The gold rush -- the hydrocarbon rush, the fracking rush -- is on. And opportunities for investors are immediate -- and many.
There are many so-called fracking plays. An entire cottage industry of MLPs has emerged and is looking to waste your money. A word to the wise: Avoid those dry wells and go for the companies benefitting from the boom. Here are five great picks in fracking.
C&J Energy Services (CJES)
This company and stock have ridden the shale boom and now the geniuses on Wall Street are saying the great growth days are over. Not so. CJES has been an oilfield presence for many years. It has seen great growth due to fracking and in all kinds of oil fields, not just shale. The company and the stock have legs. It is seen as near-pure play on shale, but it is really a play on a mixed business serving traditional and fracked sites.
USA Compression Partners (USAC)
This company is a one-stop shop for the compression equipment and services needed at shale gas fields. It is focused on shale, went public in January and even though it seemingly has a ridiculous P/E, it will quickly grow into that valuation. Going public does not mean it is a new or speculative company; USAC had $118 million in revenue in 2012. The company leases out its equipment -- and fracking is equipment intensive. It entails drilling a lot of wells that run out of value far more quickly than a traditional well. It measures its capacity in a way unlike anything else I have seen: available horsepower, which is appropriate for a Texas-based company.
Nuverra Environmental Solutions (NES)
Now this is a solid company being treated as a speculative outfit and stock. Nuverra used to be called Heckman, but as it plunged into the energy sector, it changed its name. Why energy and fracking? The single most difficult production and environmental problem facing frackers is water -- the potential to pollute massive amounts of water. Nuverra is developing a 100% solution -- pardon the pun -- that would clean and recycle wastewater from fracking. The company has a large business in other sectors and it forecasts top-line revenues at between $750 and $825 million in 2013. If it can get shale right, it is dirt cheap at less than $3 share.
US Silica Holdings (SLCA)
This used to be everyone's favorite fracking stock, now it is just a stock -- but it is a great one nonetheless. The company's name says it all -- it provides the sand used in fracking and other oil and gas extraction operations. Sand, you ask? It is injected with water and chemicals to split open otherwise too-tight formations. Sales went from $296 million in 2011 to $442 million in 2012, with profits rising to $79 million. Despite this, the stock is valued at a multiple lower than the S&P 500.
Suburban Propane (SPH)
Suburban Propane is the nation's largest retail distributor of propane. Suburban Propane is a great beneficiary of the increasing flow of natural gas liquids (NGL) from fracked fields, specifically from northern Pennsylvania. The company does what it says -- it distributes propane, an NGL -- and very high quality NGLs are already flowing from that area of the country. Suburban Propane company will benefit from increasing supplies, that in turn create their own demand. Did I mention they have a heavy concentration of their business in the northeast? The current yield is 7.8%.
Michael Shulman is the author of Made in America: Inside Stories of Success and writes several investment advisory services.
More from Traders Reserve
Suburban Propane is a partnership. They operate in 30 states in the US. It always seemed a terrible stock to own in a non-IRA account because I assumed that I would need to file state taxes with most of them.
I know that Pennsylvania doesn't give you an exemption on any income that you earn in the state. That means you need to pay them their cut.
At least no one is bitching on here about fracking yet....
Everytime we try and become energy independent, someone bitches..
Fracking, Windturbines, Solar, building more Refineries, etc,etc.
Can you only imagine not being involved in the Middle East...?? Wars where we send our kids.
Other Countries where we also send them bags of Money..
And then having to defend Israel with both..or weapondry.
If anybody needed help they could "pay us" big bucks....NOTHING LESS.
Guns for hire, instead of for free.
Copyright © 2014 Microsoft. All rights reserved.
These hot movers could rise by double digits in coming months.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.