Gas Equipment Company

3 Stocks to Watch in Oil and Gas Equipment
May 14, 2015 – 03:13 pm

GSource: TexasRaiser via Wikimedia Commons.

When is the right time to buy oil and gas stocks? Well, the argument could be made that today may not be the best time ever in the history of the market, but it's still a pretty good one. With oil and gas prices low thanks to less than stellar demand growth and a surge of supply, stocks in the industry look quite cheap.

But perhaps you're hesitant to make that oil and gas purchase because you are still skeptical about a recovery. If that's the case, there are a few stocks worth watching to measure the industry's pulse. National Oilwell Varco, FMC Technologies, and Emerge Energy Services are three that will help you better undserstand which way the wind is blowing in the oil markets.

The big picture for oil and gas equipment
The indicator that most people rely on when gauging the health of anything oil and gas is the price of the commodity. However, while commodity prices will play a pretty large role, they aren't really a panacea for ailing companies in the oil and gas equipment space. Instead, the more important indicator is drilling activity. As long as producers are out there putting a drill bit in the ground, equipment companies will be needed. Drilling activity can be high when prices are low, and can also experience downturns when oil and gas prices are high, so don't immediately associate oil and gas prices with the ultimate fate of equipment companies.

That said, here's why those three companies mentioned above are worth watching.

National Oilwell Varco: This one is pretty much a no-brainer, because it is the quintessential oil and gas equipment manufacturer. Just about any piece of equipment needed for the physical drilling of a well is manufactured by National Oilwell Varco - it's even getting into supplying other large ticket items with equipment, such as floating production, storage, and offloading facilities. By last count, the company controlled more than 60% of the market for supplying offshore rigs with drilling equipment.

There has been quite a bit of concern lately regarding the decline in drilling activity, the delayed delivery of many new offshore rigs, and, for National Oilwell Varco specifically, a declining backlog of manufacturing work. This is definitely a concern for the next several quarters, but the truth is that equipment gets used and needs to be replaced, and additional equipment will be needed to meet growing oil and gas demand. With a strong balance sheet and a deeply embedded customer base that needs NOV's standardized parts to replace those currently in use, the company stands to do well when demand picks back up again.

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