The Motley Fool

Oil Services Sector: Should Investors Buy or Sell?

A few weeks ago, I reviewed Mullen Group (TSX:MTL) and Precision Drilling’s (TSX:PD)(NYSE:PDS) fourth quarter results, where we saw a return of revenue momentum and renewed optimism about next year. Let’s check in with some other oil services names and their fourth-quarter results.

Trican (TSX:TCW) reported a 14% increase in revenue for the quarter, and Calfrac’s (TSX:CFW) revenue increased 26%, while EPS was flat. Activity is strong but we have yet to see the pricing power that comes with strong activity levels.

These results echo the struggles that Mullen Group reported in its fourth-quarter results. Results were below expectations due to margin pressure. Operating costs were higher than normal, thus driving operating margins 6% lower versus last year. Productivity was lower than usual and operating expenses such as wages, fuel, and repairs and maintenance were higher than expected.

Weakness in pricing and increased costs also weighed heavily on the results of Trican and Calfrac. Trican saw pricing decreases and increases in costs that ate away at the company’s margins. EBITDA margins in the fourth quarter were 6.8% compared to 7.7% last year. Calfrac also saw a deterioration in Canadian EBITDA margins, but the strength in Latin America and Russia more than offset this.

Stocks move in anticipation of improving industry conditions

Calfrac shares have a three-month return of 17.8%, Trican shares have increased 10.85%, Mullen Group has decreased 2.3%, and Precision Drilling has increased 31%.

Foolish bottom line

Clearly, the highly competitive market in Canada is a concern. But there appears to be optimism with regard to the pace of development of unconventional resources and its impact on activity levels and ultimately, pricing. Remember, the oil service names are a volatile way to invest in the energy space. So timing is very important.

These stocks have seen great increases in good times, but the reverse is true in bad times. Looks like with the anticipated increases in drilling activity and the renewed strength in natural gas prices, these may be the good times.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas holds shares of Precision Drilling.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.