Cramer: The Best Ancillary Oil Plays

NEW YORK (Real Money) -- When I first got into journalism we were being schooled by Woodward & Bernstein to follow the money. It was always the money trail that got you to what was really happening. 

In the stock market you can do the exact same thing when you look at the money.

Right now I am following the money in oil and gas, and it keeps leading me to the places that make the most sense to invest. Just take last night's "Mad Money."

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Ostensibly, I had no oil companies on last night. That's pretty unusual, as I have tried to introduce people to all the best oil and oil-related plays I can find, from Cheniere Energy (LNG) to Access Midstream Partners (ACMP) to Halliburton (HAL) to Anadarko (APC), Apache (APA), Carrizo (CRZO), EOG Resources (EOG) and so many others.

The performance of all of these companies continues to astound, as we saw yesterday when Cheniere signed a startlingly exciting 20-year agreement with Woodside Petroleum from Australia. This was a total shocker; Woodside is supposed to be the king of LNG and here it is, buying from little Cheniere.

Last night, however, I featured three odd beneficiaries of the oil and gas renaissance simply because I followed the money.

First, the one most abundant material on earth may be sand. Silica is widely hailed as a material that has almost no cost.

Which is why it is amazing to listen to the story of Emerge Energy (EMES), a company that makes the right kind of sand for fracking. Believe me, there is only one kind of sand that the oil drilling companies want: the Wisconsin sand that Emerge owns. Now, the first reaction you will have to Emerge is: "Don't be ridiculous, there is nothing proprietary about sand." Then you look at the stock price, which has gone from $20 to $105 in a year, and you start to think differently. Then you dig deeper and you see a company that simply cannot keep up with the demand. I am confident this company will top estimates next year simply because it can write its own ticket.

Have we missed it? It's pretty much like EOG or Continental (CLR) or Pioneer (PES); we missed a lot, but there's probably more.

Then there's Timken Steel (TMST), the spinoff of Timken that starts trading today. Timken makes the highest quality, strongest steel, the type of mission-critical steel that is used in ball bearings, the parent that Timken Steel's being spun out of. You know what's this company's biggest market? At one time it would have been automotive or mining. But now it is the mainstay of drilling, and one of its chief customers is National Oilwell Varco (NOV). You want to drill miles deep? You want nothing to break? You use Timken Steel. It's the default name to go to. The spinoff has a terrific balance sheet, a building order book, and, amazingly, didn't lose money when it was at 50% of capacity a few years back. Who knows how much it will make now that the drilling revolution just keeps getting stronger and stronger.

Finally, there is Sonic (SONC). OK, I hear you, come on Cramer, it's a restaurant chain. But where is it predominantly a restaurant chain? How about Texas and Oklahoma, two growth states in a little-to-no growth economy. Is that why it had 5% comparable store sales, much more than Wendy's (WEN), Burger King (BKW) and McDonald's (MCD) combined?

No.

But it sure is a tailwind that Sonic's got a proportionally huge business in those two oil and gas booming states.

It's been six years now that I have been singing this oil tune, and still most people haven't caught on to it. Now I am humming the ancillary plays and I have to tell you, they are every bit as in the money.

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Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long APC.

This article was originally published on Real Money at 6:28 a.m. on July 1.


Now let's look at TheStreet Ratings' take on some of these stocks.

TheStreet Ratings team rates CHENIERE ENERGY INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate CHENIERE ENERGY INC (LNG) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and increase in net income. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and generally higher debt management risk."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • LNG's revenue growth has slightly outpaced the industry average of 3.2%. Since the same quarter one year prior, revenues slightly increased by 2.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 144.97% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • CHENIERE ENERGY INC has improved earnings per share by 18.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CHENIERE ENERGY INC reported poor results of -$2.32 versus -$1.82 in the prior year. This year, the market expects an improvement in earnings (-$1.22 versus -$2.32).
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, CHENIERE ENERGY INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to -$18.22 million or 37.82% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

TheStreet Ratings team rates SONIC CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate SONIC CORP (SONC) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, solid stock price performance, growth in earnings per share and increase in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • SONC's revenue growth has slightly outpaced the industry average of 6.0%. Since the same quarter one year prior, revenues slightly increased by 3.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 54.39% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, SONC should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • SONIC CORP has improved earnings per share by 15.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, SONIC CORP increased its bottom line by earning $0.64 versus $0.61 in the prior year. This year, the market expects an improvement in earnings ($0.83 versus $0.64).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the Hotels, Restaurants & Leisure industry average, but is less than that of the S&P 500. The net income increased by 13.4% when compared to the same quarter one year prior, going from $14.79 million to $16.78 million.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, SONIC CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.

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