With the price of oil once again pushing the $90 per barrel level it makes perfect sense for the oil service stocks to join it in the rally. A higher price of oil means a larger profit for the oil exploration and production companies, which in turn will result in more money being spent on servicing rigs and equipment. The oil service stocks will be ready to accept all money that's thrown their way.

IN PICTURES: 7 Tools Of The Trade

Oil Equipment and Services
Dril-Quip (NYSE:DRQ) concentrates on equipment and services that are used by the deepwater drilling companies that are located offshore. Their products are used to explore for oil and gas on offshore oil rigs. The company trades with a forward P/E ratio of 24.3 after a big rally over the last six months saw the stock nearly double in price. In early December DRQ hit a new all-time high even as the offshore drilling situation in the Gulf of Mexico remained up in the air. DRQ is one of the strongest stocks in the sector.

Cameron International (NYSE:CAM) provides flow equipment products and systems to the oil and gas industries around the globe. The company is split into three segments: drilling and production systems, valves and measurement, and compression systems. The stock trades with a forward P/E ratio of 18.5 and is trading just below the all-time high set in 2008. A possible risk to watch is the fact that CAM provided the well equipment for the Deepwater Horizon rig that sank in the Gulf of Mexico last year. So far the U.S. government has not named CAM in its lawsuit against BP (NYSE:BP) and some of its partners.

Offshore Energy
(Nasdaq:ACGY) is another offshore energy service company that is based in the U.K. and concentrates on seabed-to-surface engineering. The stock trades at a forward P/E ratio of 21.5 and is sitting at the best level in over two years after nearly doubling from its June 2010 low. The fact that ACGY is an international stock that will have less exposure to the U.S. offshore market is a positive due to the political issues regarding drilling in the country.

Technology and Laboratories
FMC Technologies
(NYSE:FTI) provides technology solutions to the energy sector in 15 countries worldwide. It designs and services technologically sophisticated products such as wellheads and fluid control equipment used by oil and gas companies. The stock is a bit expensive with a forward P/E ratio of 26.4; this is due to the big rally to a new all-time above $90 it touched in mid-December. FTI is one of my favorites in the sector, but it must pull back to the $80 before it will be considered a buying opportunity.

Core Laboratories (NYSE:CLB) is a Netherlands-based company that is the leading provider of reservoir management services in the oil and gas industry. Its proprietary technology allows its clients to maximize the recovery of hydrocarbons from the wells. CLB is another stock that is at a new all-time high as companies turn to them to get the most of our their current wells. A forward P/E ratio of 25.7 makes the stock expensive at current levels, but a pullback can change that quickly.

Do Not Chase
Many of the stocks mentioned in this article are at or near all-time highs. I do feel there is more upside to the entire sector, however when considering buying the key is to buy on weakness and not when a stock is at a new high. (Changes in the price of oil aren't arbitrary. Read on to find out what moves them and why. Check out What Determines Oil Prices?)

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

Related Articles
  1. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  2. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  3. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  4. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  5. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  6. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  7. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  8. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  9. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  10. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
Trading Center