Energy Soaking Up the Capital

 | Aug 27, 2013 | 12:00 PM EDT
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I am deploying more and more of my new capital into the energy sector. The main reason is that the area is one of the few showing solid revenue and earnings growth right now -- especially outside the mega cap names like ExxonMobil (XOM) and Chevron (CVX).

I think this growth will continue as long as energy prices do not decline significantly, which I do not see in the near term. In addition to the small-cap and mid-cap exploration and production concerns I have highlighted on these pages, I also like the outlook of several plays in the oil services space. Two names that look like solid growth vehicles are highlighted below.

Halliburton (HAL) is one of the largest oil services firms in the world. I have owned this oil services giant since early in the year when the shares were trading in the mid $30's. The stock is now approaching $50 a share, but still appears to have upside ahead. Revenue growth is tracking to just 4% this fiscal year, but the consensus is growth will accelerate to around 10% in 2014. The stock is not expensive at around 12x next year's projected earnings.

The company just successfully completed a $3.3 billion Dutch tender offer to repurchase shares. In addition, Goldman Sachs recently maintained Halliburton on its Conviction Buy list, and raised its price target to $63 a share from $60.

Halliburton is well-positioned to benefit from the increasing amount of technology needed to unlock energy reservoirs via shale formations and through deep offshore activity worldwide. To cite just one new possible avenue of growth, Bank of America recently estimated that the new energy reforms Mexico is proposing could mean an additional $2.5 billion in annual spending on oil services. Most of this spending will go to the major players like Halliburton. It is one reason this large oil services play is a core position in my growth portfolio.

Hornbeck Offshore Services (HOS) owns and operates fleets of  offshore supply vessels  and multi-purpose support vessels  as well as ocean-going tugs and double-hulled tank barges.

Hornbeck is a more aggressive growth play than Halliburton. New build vessel additions and upgrades provide the basis for continued top and bottom line growth into 2014 and beyond. Revenue growth is coming in at just under 20% for this fiscal year. With new vessels scheduled to be delivered next year, this growth looks set to accelerate to better than 30% in 2014.

Earnings are rising exponentially. After earning just over a $1 a share in FY2012, the company is tracking to approximately $2.50 a share of profit this fiscal year. The consensus for FY2014 calls for over $4.40 a share. This could prove to be conservative as the company has crushed bottom line expectations each of the last three quarters. Howard Weill just placed a large price target revision on Hornbeck, moving to $71 from $51 a share on this fast-growing oil services provider.

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