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Time To Get Into Oil?

As crude oil prices begin to stabilize it may be time to to take a second look at the tertiary companies dependent on the energy sector. Stabilization in price means production is also ramping up in parts of Canada as shale and other sources return to profitability due to current prices. The turn around of North American oil production means that oil storage is once again needed and companies may be willing to spend on new tanks. Apart from new tanks, there is also a growing need to replace older underground storage tanks at facilities such as gas stations. The cycle of replacing old and corroded tanks is on the horizon as the average age of underground storage tanks begins to increase.


ZCL Composites is in a unique position to profit from these trends. They are based in Canada and manufacture fiber glass oil storage tanks and sell replacement lining that can be fit into older metal storage tanks. Both angles of business represent tremendous opportunity in the market, especially if companies are not yet willing to shell out the money for a brand new tank. Fiber glass tanks are lighter, more durable and more reliable than their metal counterparts which justifies their slight price premium. 

ZCL's stock is also trading at a bit of a premium. Although it's trading at an expensive multiple with relatively slim profit margins, I believe there small size gives them tremendous room to expand margins as business increases. The multiple account for revenue growth, but not the added bonus of expanded margins leading to greater profitability. ZCL is not a traditional value play, but represents a good opportunity to gain exposure to the energy sector with less correlation to volatility from commodity price movements.

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