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Shawcor Inc (TSX:SCL) is trading at 10-year lows.

Is this an opportunity?

Let’s dig a little deeper to find out where we stand and whether this stock price action is justified or not.

First, we should acknowledge that the energy market has had it rough for some time now. Volatility and pockets of extreme weakness have been the norm.

For its part, Shawcor has been struggling in a difficult market where spending on infrastructure has stalled.

But declining revenue and declining earnings have been accompanied by rising free cash flows and a strengthening balance sheet, which is testament to the company’s strength and quality.

As an illustration of this, we can just look at results since 2013, which show a 15% decrease in revenue, net income falling off a cliff to $72 million from $219 million, but free cash flow that has been greatly positive in the last four years.

And although company’s third quarter 2018 results show continued declines in revenue, or an 11% decline to be more precise, and a 46% decline in EPS, the numbers were better than expected, which may indicate the beginning of an uptrend.

Also, although cash flow was weak, the balance sheet has now accumulated $190 million in cash, up from below $80 million in 2013, so there is definite financial flexibility here, which goes a very long way in downturns.

The long-term trend is good, as the aging global energy infrastructure is in dire need of investment.

And revenue and earnings are expected to accelerate into 2019.

So I expect Shawcor stock to outperform in the coming years, and this dividend stock, currently yielding 3.13%, to be a top energy stock.

Pason Systems Inc (TSX:PSI), on the other hand, is trading at 52-week highs amid continued top notch results, and while providing a dividend yield of 3.59%.

Pason is an oilfield services company that is just as much of a technology company with clear dominance in Canada and the opportunity to continue to expand into new products, industries and geographic markets.

The company’s competitive advantage lies in the technology that it has and continues to bring to market, making the oil and gas business a less risky and more profitable one.

Pason has a strong track record and when we look at its history, we can see evidence of strong cash flow generation, consistent dividend increases and a very profitable business model.

In the first nine months of 2018, Pason reported a 25% increase in revenue, a 574 basis point increase in EBITDA margins, and a 64% increase in funds flow from operations.

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More reading

• The Embattled Oil Services Sector Is Gearing Up for Better Times
• 3 Smokin’ Hot Stocks Hitting New 52-Week Highs
• This Energy Stock Popped 15% Yesterday, With More Upside to Come

Fool contributor Karen Thomas has no position in any of the stocks mentioned. Pason Systems is a recommendation of Stock Adisor Canada. 

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