(FTK) Playing the Energy Boom

The best advice I have ever been given about playing the energy boom in North America is to buy companies that don’t take the risks: Buy oil and gas services, not explorers and developers.

And one of the best energy service plays I have seen to date is Flotek (NYSE: FTK).

This company has taken the gas and oil business by surprise with something called CnF, Complex Nanofluid. In independent studies, CnF has been shown to dramatically improve the output of both oil and gas wells.

It was first used by Freeport-McMoRan (NYSE: FCX) in the Niobrara field and is now being used by the majority of the wells there. After seeing the huge increase in yield CnF created for Freeport, Plains All American Pipeline (NYSE: PAA), Marathon Oil Corp. (NYSE: MRO) and Oasis Petroleum (NYSE: OAS) started using it in the Eagle Ford Shale area.

Halliburton (NYSE: HAL), which is delivering CnF to some of its customers, in a recent conference call stated it was seeing consistent adoption of the product across the industry.

Flotek reports that it currently has about 5% of the market for CnF and expects to triple that by 2015. Earnings are expected to move from $0.67 a share to $2 by 2016.

A near-term move to $25 is also expected.

CnF is also made with a citrus component that should help get it by all the environmental objections fracking has been running into.

And CnF is not the only innovative product Flotek has. The company recently introduced a tool called the Stemulator that increases the efficiency of certain types of drilling. It is expected to take the No. 2 spot behind a similar product from National Oilwell Varco (NYSE: NOV), a company I have profiled in the last few weeks.

An exploding energy business in North America, tripling its market coverage by 2015 and increasing production with an environmentally safe product: You have to look at Flotek!

A Do-It-Yourself Stock

Stanley Black & Decker (NYSE: SWK): For my money, this is the industrial stock on the exchange. No one can compare to its dividend history, and the current management has expressed its commitment to returning one-third of free cash flow to stockholders.

One hundred thirty-seven years of paying a dividend, and 46 years of increasing it.

But you can’t own a company just because of its dividend, and SWK has lots of reasons to own it.

In 2013 revenues were up 8%, and earnings are expected to move up 15.7% this year with a five-year growth estimate of 10.3%. And the one problem area that has been holding back earnings – the security division in the EU – has been reorganized. That means they fired the entire sales staff and replaced it with real salesmen. They expect to see increasing revenues by this fall.

The one thing all investors should be aware of is that this is a company that gets slammed by recessions. It is one of the better industrials for returns, but it is still an industrial. When you consider its dividend history, this should be a moot point.

The “Slap in the Face” Award: Blown Whistle

This is a follow-up to a story I did last year about a Russian named Magnitsky who, after blowing the whistle on a huge – I mean hundreds of millions of dollars huge – theft from the Russian treasury by insiders, was arrested shortly after pointing the finger at local officials, and died mysteriously while in police custody in Russia.

He was the whistleblower, and he was the one arrested and died in custody, under mysterious circumstances.

A Russian immigrant once told me that in Russia, the government is the Mafia. How right he was.

Well, it seems a lot of that stolen money has never been recovered – I’m sure you’re as stunned as I am about that – but it has shown up, where else, in Manhattan real estate.

After numerous stops in shell companies worldwide, $24 million of it is in Midtown real estate and our Feds want it. I wonder what they will do with it.

Anyway, here’s where it gets good. That $24 million is less than 10% of what was stolen. Billions of rubles were stolen; most of it through the chief tax collector’s office in Moscow, and none of the people originally identified by Magnitsky have been arrested or even charged.

But they all have nice places on the Upper East Side. Only kidding, not all of the people involved could have nice places on the East Side for a measly $24 million. It’s way too expensive.

I guess the moral of the story is: Don’t even think about whistling in Russia.

View original at: Investment U


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