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. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  2. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  3. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  4. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  5. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  6. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  7. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  8. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  9. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  10. Stock Analysis

    Are the Brands Millennials Love a Good Buy?

    Millennials make up a very big — and thus important —c onsumer generation. So if they love a brand, its stock is likely to outperform, right?
  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 >>

You May Also Like

Trading Center