Is Wall Street Wrong About These Stocks?
Wall Street enthusiasm for the companies listed below is at best tepid, yet our Motley Fool CAPS members would disagree. They've bestowed on these companies top honors, signaling their belief they'll outperform the market.
So who has it right? The professional class of analysts sitting in their paneled offices smoking stogies, or a motley community of investors pooling their best thoughts for others to share? We think we know who'll come out ahead. How about you?
|C&J Energy Services (NAS: CJES)||*****||50%||96%|
|Denison Mines (ASE: DNN)||****||67%||97%|
Source: Motley Fool CAPS.
As much as we love our CAPS community, don't buy these companies just because they've garnered top ratings. And don't sell 'em just because Wall Street says to. Investing requires closer diligence on your part, so use these ratings as a launching pad for your own research.
What the frack?
Despite all the noise the antifracking crowd has been making, C&J Energy Services says it's still finding strong demand for its hydraulic fracturing services. Fracking is the process of injecting fluids into rock formations under high pressure to crack them open, giving access to oil and gas deposits. Critics contend fracking causes all sorts of environmental problems, everything from groundwater pollution and flaming faucets to earthquakes.
While demand remains strong, the hubbub has taken a toll. C&J's stock is down 47% from its 52-week high while CARBO Ceramics (NYS: CRR) , a maker of proppants used to prop open the fissures fracking makes, is down more than 57%. Fracking wastewater control specialist Heckmann (NYS: HEK) is down 53%.
Of course, not all of the decline is because of environmentalists. The natural gas industry has been mothballing the number of rigs in operation in an effort to gain control over inventories awash in excess supply. According to oil and gas services company Baker Hughes, which tracks the number of rigs in operation, nat gas rigs are down by a third compared to a year ago.
Yet what accounts for the strength C&J reports is likely the increase in oil rigs in operation, which are up 44% year over year. Revenues jumped 88% in the first quarter, generating a 70% increase in profits, but it could have been better had C&J not experienced equipment underutilization and customers using their own sand as proppants instead of that sold by C&J. Because sand comprises a large part of the company's revenues, when customers opt for their own supplies, revenues can be hurt even if it doesn't materially impact operations.
CARBO Ceramics also reported a 2% decline in U.S. volumes of proppants (though international sales were up 21%). It also noted the transition from gas to oil and said the ceramic proppants that it specializes in are almost fully directed to liquids rather than gas.
Highly rated CAPS All-Star nonzerosum notes C&J's decline coincides with the devaluation experienced by natural gas drillers, but since it also assists the oil plays, says "this company is monstrously undervalued." Add C&J to your watchlist and tell me on the C&J Energy Services CAPS page or in the comments box below when you think it will rebound.
A glowing opportunity
Maybe Wall Street thinks no one wants to buy uranium miners these days, or at least not pay a premium for them, otherwise it's hard to understand their reticence in seeing the prospects for Denison Mines. The Canadian uranium player positioned itself to be sold off after announcing it was selling its U.S.-based assets to Energy Fuels.
Of course, Denison hasn't said that's what it's doing, but the move certainly would pave the way for Cameco (NYS: CCJ) or Areva, with which Denison owns a 22% stake in its McLean Lake project, to make a move.
Ever since the Fukushima nuclear reactor meltdown in Japan last year, uranium and its producers have borne the weight of the disaster. According to Ux Consulting, an industry trade publication, uranium prices marked their first monthly increase since the earthquake and tsunami wreaked havoc on the industry. While there's still a lot of uncertainty in the uranium market, this is a hopeful sign, one which should help Denison fetch a better price than might otherwise be expected.
I rated the stock on CAPS last month to outperform the markets because of the likelihood of it being an acquisition target. Tell me on the Denison Mines CAPS page or in the comments section below if you agree this is an eventuality, then add the uranium miner to your watchlist to be notified when an offer is made.
What's wrong with that?
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At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Heckmann and CARBO Ceramics. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.