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Energy stocks gain momentum

Steve Halpern regularly reviews more than 400 stock market newsletters and services, choosing what he believes to be the most interesting or informed recommendations. Investors should do their own research before buying or selling a stock. Halpern is editor of the Dick Davis Digest. For subscription information or further details call (800) 654-1514.

Many advisers are predicting a big rise in oil prices in coming years _ and, thus, a big jump in energy stocks. One smart way to play such a trend is by investing in energy-service firms, which provide drilling, measurement and testing services for the large oil and gas companies.

"The energy-service stocks are great buys now that energy prices are poised to jump," said Stephen Leeb, editor of Personal Finance from Alexandria, Va. "That's because energy-service stocks tend to outperform the stocks of even the big oil companies when energy prices are in an upswing."

Below are some of Leeb's favorite plays in the sector:

Energy Service

Headquarters: Dallas

AMEX (Symbol: ESV)

52-week range: $12.50 _ $19.25

Friday's close: $13.87{

"Energy Service has two main divisions: offshore drilling and a marine-vessel unit (which serves drillers). After several years in the red, the company emerged in 1993 as lean, financially strong and profitable. Earnings this year should more than double 1993's $0.30 a share, and the firm could see earnings hit $1 in 1995. Beyond that, profits should grow more than 25 percent a year. For those who can tolerate above-average risk, Energy Service is a buy at prices below 17{, for a three-year target of at least 35."

Sonat Offshore

Headquarters: Houston

NYSE (Symbol: RIG)

52-week range: $15.62{ _ $21.50

Friday's close: $19.37{

"While the fortunes of other drillers are tied more to natural-gas prices, Sonat's are tied more to oil. That's because its fleet is the best equipped to drill in deep water, where big oil deposits are usually found. (Most natural gas is found in shallow water.) One of the best-capitalized drillers, Sonat is profitable and growing strongly, with 25 percent annual earnings growth expected over the next several years. There are two kickers here: Sonat Offshore trades below its breakup value, and it's the only pure drilling company to pay a dividend (in this case, for a yield of 1.2 percent). Buy up to 20 for a three-year target of 45."

Reading & Bates

Headquarters: Houston

NYSE (Symbol: RB)

52-week range: $5.37{ _ $7.75

Friday's close: $6.62{

"With 14 new and highly mobile rigs, Reading & Bates has a broad worldwide presence. The firm also has an excellent balance sheet, which gives it great financial flexibility. We expect the company to become profitable again by the end of 1994, after which earnings growth should average 27 percent a year. Meanwhile, with Reading trading nearly 30 percent below its breakup value, the stock is one of the best combinations of growth and value around. Buy at prices below 6{, for a three-year target in the mid-teens."

Schlumberger

Headquarters: New York

NYSE (Symbol: SLB)

52-week range: $50.75 _ $63

Friday's close: $55.62{

"The more diversified oil-service firms like Schlumberger don't just drill. They perform a broad range of measurement and testing services. Schlumberger, in fact, is as close as you can get to a franchise here. The company, the world's largest driller, is also the industry's undisputed technological leader. Earnings should jump 15 percent this year, growing at a 25 percent annual clip for several years thereafter. Buy up to the low 60s for a three-year target of 100."

Halliburton

Headquarters: Dallas

NYSE (Symbol: HAL)

52-week range: $50.87{ _ $35.25

Friday's close: $31.62{

"In addition to drilling and oil services, Halliburton also performs research, engineering, and construction for the big energy companies. Halliburton is very well-positioned. (Indeed, profits could triple in the next two to three years.) The company gets high marks for its excellent balance sheet, and the $1 dividend provides a solid 3.4 percent yield. Buy Halliburton at prices up to 32 for a target of 50 in the next three years."

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