Oil Stocks to Buy as Gas Prices Plunge

Just a couple of analysts cover the company, and earnings have regularly blown away expectations. For all of 2006, analysts are expecting earnings of $1.72 a share, a 236% jump over last year. For 2007, analysts are projecting just a 19% growth burst to $2.04. But I think that after the two recent acquisitions, the number will be more like $2.20. If that comes to pass, then the forward price/earnings multiple is just seven, which is crazy cheap.

David Anderson, whose hedge fund Palo Alto Investors has owned shares in Allis-Chalmers since 2004, said he thinks the company will come to deserve to trade for 15 to 20 times its trailing 12 months of earnings, which would put the stock at $30 to $40 in a year and as much as $60 to $70 in three years.

If you forget all the other stats, think about this one: It costs about $40 billion in drilling and services to develop a million-barrel-per-day oil field. The world needs at least 10 of those. Case closed.

Doubling Profits

Next, more quickly, is Flotek Industries(FTK Quote), which provides proprietary chemicals and tools to oil drillers and miners. Smaller even than Allis-Chalmers, with a market capitalization of $175 million, Flotek last week reported a fantastic third quarter, with earnings up 100% over last year due to higher sales and improved margins -- a double whammy.