Oil Stocks to Buy as Gas Prices Plunge

The stock is selling at a paltry trailing price/earnings multiple of 10 despite growth in the 50% to 100% range. Now trading at $20, it should go to $40 over the next 18 months. Anderson's Palo Alto fund is the leading institutional holder of Flotek, as he thinks the company has exercised financial discipline, reaching 20% return on capital.

As for the two big-caps, well, it doesn't take a lot of imagination to recognize that industry stalwarts Schlumberger(SLB Quote) and Baker Hughes(BHI Quote) are growth companies in what has come to be perceived as a cyclical industry.

Despite terrific third-quarter earnings reports from both last week, they're trading 20% off their May highs. Both fetch forward-looking price/earnings multiples of around 15, despite earnings growth that is likely to stay in the 18% to 22% range for at least two to three years. Shares are truly undervalued at this level and will catch a spark from any spike in oil -- so start buying them now and grit your teeth in the face of any near-term volatility, because you'll have two big winners on your hands in a couple of years.

If you think oil is going back to the $40s per barrel, then you can forget these ideas. But if you think, as I do, that the Organization of Petroleum Exporting Countries will defend the $55 level and that world demand for energy will remain steady or grow over the next decade, keeping pump prices high, then investments in oil-field-services companies are the way to get your revenge.

At the time of publication, Jon Markman owned shares of Exxon Mobil, although positions may change at any time.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Allis-Chalmers and Flotek to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.