The short term investing stock picks blog

Today, I wanted to write to you about an extremely attractive technical and fundamental play, again in the natural gas arena.  Appropriately, if not so creatively, named Natural Gas Services (NYSE: NGS) provides small to medium horsepower compression equipment to natural gas companies. NGS main value added comes from non-conventional natural gas production business, such as coalbed methane, gas shales and tight gas.  This is a business model that is becoming extremely more attractive as natural gas has finally risen out of its doldrums and looks fundamentally sound above $9 mmbtu through 2008 and, some say, as high as $13 in 2009.  This means that unconventional gas formations will be seen as increasingly attractive and profitable means of growth for E&P companies.  This is especially so in the ‘buzz’ exploration areas of the Marcellus and Utica shale.

Technically, we are seeing the end of a little mini cup/flag pattern forming on NGS as shares took a break somewhat last week.  As this one proves itself back over its previous high of $29.00, it is likely that it will continue its run up.  I don’t use a lot of these, but many of your traditional technical bullish signs are glowing bright green for NGS right now.  A good free resource, to use as a guide only, is the Trading Day page.  The average volume on NGS is around 233k.  In the past three months 7 of the last 9 times the stock traded over 300k it was up.  If it hits $30 it will be a double top breakout on the P&F chart.

Fundamentally, the stock must have growth to drive gains higher.  The stock already trades at a P/E around 50% higher than its peers in the Oil Services group, mostly because many see 18-30% growth in this company for some time to come.  The stock is actually trading, despite its run, near the bottom of its short P/E history for forward and trailing quarters.  The company will announce results at the end of May and I believe the estimates remain very low for the company, providing a great potential for upside.  In the second quarter, the company moved to a new fabrication facility which will allow it to add over 300 new rental units to its service fleet in 2008 alone.  This should provide at least a 20% increase in its rental fleet, as the company had around 1,353 rental units at the end of fiscal year 2007.  The company’s growth could be hindered by the inability to raise sufficient capital and new technical from its larger oil and gas service competitors.

Disclosure: I hold no position in NGS.

This entry was posted on Monday, April 21st, 2008 at 12:16 pm and is filed under Buys. You can subscribe via RSS 2.0 feed to this post's comments. You can comment below, or link to this permanent URL from your own site. Your comments will be moderated but will appear as soon as humanly possible.