With crude oil finally pushing past $75 a barrel and coming to rest at a fresh 52-week high around $77 a barrel, hope will no doubt be renewed that black gold is poised to make another bullish run. While rising oil inventories and tepid demand make a climb back to the 2008 high of nearly $250 a barrel unlikely, clearing resistance at $75 could mean some higher prices are on the way.

IN PICTURES: Eight Ways To Survive A Market Downturn

The previous bull market in crude may have alerted more than a handful investors as to what the best equity plays on rising crude prices are. And let's be honest: the best equity plays on rising oil prices are NOT traditional exploration companies like Chevron (NYSE: CVX) and ExxonMobil (NYSE: XOM).

While these are decent stocks with robust dividends, Chevron, ExxonMobil and other oil explorers tend to lag crude's price appreciation, which can be a frustrating scenario for investors.

So where is an investor to turn to profit from rising oil prices? Oil services are the answer. A quick look at the Oil Services HOLDRs ETF (NYSE: OIH) shows how tightly correlated these stocks are to the price of oil. That makes OIH's advancement to fresh 52-week highs no surprise as the underlying commodity accomplished the same feat. It might be time to take another look at some of the key players in the oil services sector.

All About The Outlook
Halliburton (NYSE: HAL) Forward P/E: 22 Free Cash (End of 2008): $1.03 billion
Halliburton is one of the largest suppliers of goods and services to the energy industry and as such is one of the bellwether stocks in oil services sector. The company is expected to report third-quarter earnings of 26 cents a share on sales of $3.41 billion and with the stock already hovering near its 52-week high, a positive report and some bullish guidance should send Halliburton's share above $31, a level not seen in more than a year.

The company has been trying to improve its international profile through contracts in Mexico and Brazil, but it is still more exposed to North America's natural gas market than its rivals. That's an issue to be wary of given the precipitous fall in natural gas prices over the past two years along the lines of 70%.

That said, Credit Suisse recently raised its price target on Halliburton to $34 a share from $26 and the company recently signed a contract with Talisman Energy of Canada to provide drilling fluids on the Norwegian Continental Shelf. Those catalysts combined with a solid earnings report could lift the stock into low to mid 30s.

A Cash Flow King
National Oilwell Varco (NYSE: NOV) Forward P/E: 16 Free Cash: $1.78 billion
If you spot an uptick in offshore drilling projects by the major oil explorers, National Oilwell Varco is sure to benefit. NOV makes many of the parts and components used in oil and gas drilling operations, so if you're bullish on NOV, your mantra should be "drill, drill, drill."

NOV enjoys a unique competitive advantage in that it sells most of the parts that a rig needs to run, trains the workers on how to operate the rig and services the parts that it supplies. That makes it hard for a company that has bought NOV's products to move to an NOV competitor for servicing needs.

While NOV doesn't pay a dividend, it's free cash flow outpaces its long-term debt obligations and the company has shown a knack for using its war chest to make prescient acquisitions. The stock is hovering right near its 52-week high, but it has a long way to go to touch its 2008 peak of $92.70. While it may take a while to see that price again, if oil moves to $90 a barrel, NOV should rise to the high 50s.

Winning With Weatherford
Weatherford International (NYSE: WFT) Forward P/E: 18 Free Cash: -$1.4 billion
Weatherford International, like Halliburton, has been dinged by its exposure to natural gas. That glum news aside, some analysts believe that natural gas prices should find a bottom sometime this year and that thesis has led to some decent institutional buying of Weatherford's shares. And like Halliburton, Credit Suisse is bullish on Weatherford as well, saying the company has the fastest top line growth prospects in the sector.

Weatherford recently completed a $490 million acquisition of BP's (NYSE: BP) Russian oilfield venture to bolster its international profile and with only 30% of its revenue coming from North America, Weatherford's international exposure could be a positive catalyst going forward.

While the company was cash flow negative at the end of last year, that was attributable to spending to gain market share abroad and the expectation is that Weatherford will be cash flow positive in 2009 and 2010.

The Bottom Line: Oil Services Rock When Oil Rises
If we continue to see bullish moves in crude oil prices, the stocks mentioned here are poised to benefit. Halliburton's earnings reports holds the keys to its near-term fortunes and Weatherford's international exposure is a source of allure, but we'd like to see natural gas prices firm a bit before getting heavy in those stocks. If rig counts continue to expand and new drilling projects are initiated, NOV stands as the best of breed. (To learn more, see The Industry Handbook: The Oil Services Industry.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  4. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  5. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  6. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Turkey

    Learn about the iShares MSCI Turkey exchange-traded fund, which invests in a wide variety of companies' equities traded on Turkish exchanges.
  8. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  9. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Oil&Gas Explor&Prodtn

    Learn about the iShares U.S. Oil & Gas Exploration & Production ETF, which provides an efficient way to invest in the exploration and production sector.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. Lion economies

    A nickname given to Africa's growing economies.
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!