Jensen: Pouring Oil on Volatility

The results of this weekend's election in Greece will likely roil markets throughout the summer. Although I remain cautious, some sectors have been hit so hard over the last few months that the bargains available right now are hard to ignore. One of the cheapest sectors I have found is oil services, especially in the small-cap space. Low natural gas prices have brought down earnings estimates over the last three months throughout the sector and cratered stock prices. Some of these stocks have significantly overcorrected and the long-term future for these companies concentrated on expanding domestic energy production is bright. Here are two promising companies that are selling for less than 5x forward earnings that should richly reward patient investors.

C&J Energy Services (CJES) provides hydraulic fracturing, coiled tubing and pressure-pumping services to oil and natural gas exploration-and-production companies.

Four reasons CJES is a solid value play at under $20:

• The stock is dirt cheap at less than 5x operating cash flow and forward earnings. It has net cash on the balance sheet as well.
• The company is being unfairly punished due to low natural gas prices. Most of its assets are deployed in oil- and liquids-rich basins. C&J has also done a solid job of penetrating most of the major E&P firms to expand its customer base.
• CJES is expected to grow revenues at more than a 50% pace in 2012, and analysts expect at least a 15% sales increase in 2013. It has a rock bottom five-year projected price-earnings-growth ratio of (.23).
• After falling for most of the last three months, consensus estimates for 2012 and 2013 have popped up nicely over the last week.

Basic Energy Services (BAS) provides various well-site services to oil and natural gas drilling and producing companies in the U.S. Four reasons BAS will reward shareholders at $9.50 a share:

• The company has one of steepest discounts between the stock's current price and analysts' consensus price target in the sector. The median price target held by the 14 analysts that cover the stock is $19.50, more than double Basic Energy's current market price.
• The stock has a forward price-to-earnings ratio of less than 5, a sharp discount to its five-year average (11.9).
• BAS is as cheap as it has been in five years based on price/book, price/sales, price/earnings and price/cash flow. The company sells at just 3% over book value.
• Insiders think the shares are undervalued as they bought more than $2 million in new shares in May at slightly higher prices.

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