With OPEC trying to keep oil from being oversupplied, many investors have looked to the oilfield services sector for solid upside potential, and with good reason. According to a new RBC research report, the land drillers have led oilfield services stocks off the bottom in every cycle recovery dating back to the early 1990s, and this cycle is no different.

Despite this trend, RBC feels that many investors are still skeptical of the land drilling trade despite margins that didn’t fall below cash positive, and the fact that the sub-sector was one of the only oilfield services groups to see prices go higher, even though the increases were very small.

Three top U.S. stocks make the RBC best ideas list, and all three are rated Outperform.

Schlumberger

This top oil services company had second-quarter results that beat expectations. Schlumberger Ltd. (NYSE: SLB) is a supplier of technology, integrated project management and information solutions to the international oil and gas exploration and production industry. The company remains the largest oilfield services company in the world, with far-reaching operations all around the globe, and it could be poised for years of solid growth despite the huge turn down in oil pricing.

Schlumberger operates in the oilfield service markets through three groups. The Reservoir Characterization Group consists of the principal technologies involved in finding and defining hydrocarbon resources. These include WesternGeco, Wireline, Testing Services and Schlumberger Information Solutions. The Drilling Group consists of the principal technologies involved in the drilling and positioning of oil and gas wells and consist of Bits & Drilling Tools, M-I SWACO, Drilling & Measurements, Land Rigs and Integrated Drilling Services. The Production Group consists of the principal technologies involved in the lifetime production of oil and gas reservoirs and includes Well Services, Water Services, Integrated Production Services and Schlumberger Production Management.

Shareholders receive a 2.43% dividend. The RBC price objective is $95, while the Wall Street consensus price target is $92.16. The stock closed on Monday at $82.33.

Nabors Industries

This company provides drilling and rig services. Nabors Industries Ltd. (NYSE: NBR) offers rig instrumentation, optimization software and directional drilling services. It also provides completion, life-of-well maintenance and plugging and abandonment of a well.

In addition, the company markets approximately 466 land drilling rigs for oil and gas land-based drilling operations in the United States, Canada and approximately 20 other countries worldwide; approximately 445 rigs for land well-servicing and workover services in the United States; 98 rigs for land well-servicing and workover services in Canada; 42 rigs for offshore drilling operations in the United States and internationally; and seven jackup units and components of trucks and fluid hauling vehicles.

Merrill Lynch has stated in the past that concerns over the company’s balance sheet are way overblown, and at current levels the shares are pricing in too modest of an industry recovery. The firm also cites the international exposure, which it sees as providing more stability.

Nabors investors receive a 1.85% dividend. RBC has a $15 price target. The consensus price objective is at $12.46. Shares closed Monday at $12.93.

Fairmount Santrol

This a smaller cap company with solid upside potential for more aggressive investors. Fairmount Santrol Holdings Inc. (NYSE: FMSA) provides sand-based proppant solutions for exploration and production companies to enhance the productivity of their oil and gas wells. The company operates in two segments.

The Proppant Solutions segment primarily provides sand-based proppants for use in hydraulic fracturing operations in the United States, Canada, Argentina, Mexico, China, Northern Europe and the United Arab Emirates. The company’s products include northern white frac sand, API-spec brown sand and resin coated proppants, as well as ceramic proppants, PowerProp product and Propel SSP product that utilizes a polymer coating applied to a proppant substrate.

The Industrial & Recreational Products segment offers raw, coated and custom blended sands for use in building products, glass, turf and landscape, and filtration industries, as well as for foundries primarily in North America. Fairmount Santrol also supplies proppants to oilfield service companies.

The $11 RBC price target compares with the consensus target of $8.75. Shares closed above that level Monday at $9.74.

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While the group has rallied sharply off the February lows, there is still upside potential for investors. It may make sense to buy small positions here and see how third-quarter earnings come out.

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