After a dismal 2017, in which the energy sector declined 4% versus an almost 20% gain for the S&P 500, the group looks poised to have a much better year in 2018. Benchmark West Texas Intermediate crude is now through the $60 a barrel level for the first time in almost three years. With the OPEC production cuts helping to thin out bloated inventories, and demand remaining very robust, the oil service companies may be set for a very solid year.

In a new research report from Jefferies, while they are very positive on the potential for the oil field services stocks in 2018, they remain cautious in their stock selection, and clearly prefer the North American companies as that is where the preponderance of the growth should be. They noted this in the report.

We see upside in oilfield services shares given (1) our Energy Team’s positive bias for oil prices in 2018 and (2) reasonable 2018-19 consensus. Issues that have overhung OFS can gradually lift, we think, with visibility on extended cyclical recovery. But we are somewhat selective, including retaining our preference for North American exposure.

Halliburton

This stock is still down over 20% from highs printed a year ago but remains a top large cap oil services pick at Jefferies. Halliburton Co. (NYSE: HAL) is one of the world’s largest providers of products and services to the energy industry. It serves the upstream oil and gas industry throughout the life cycle of the reservoir, from locating hydrocarbons and managing geological data to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.

Halliburton is the second-largest provider of oil services and the number one player in pressure pumping services worldwide. For investors looking for an oilfield services company to add, this is arguably the best, and analysts feel it will be a huge benefactor as the frac market has tightened significantly and prices are 20% to 30% off the lows.

The company posted solid third-quarter results that topped analysts’ estimates, driven by better pricing and increased activity in North America, its biggest market. Revenue from North America surged 91% due to a “strengthening of market conditions” in the region.

Halliburton shareholders are paid a 1.41% dividend. The Jefferies price target for the shares is $57. The Wall Street consensus target is $53.16, and shares traded Friday at $51.20.

C&J Energy Services

This smaller cap company is well liked across Wall Street desks and is another top pick for 2018 at Jefferies. C&J Energy Services (NYSE: CJ) is a completion and production services company that provides well construction, well completions and well services to the oil and gas industry.

The company also manufactures, repairs and refurbishes equipment used in the oilfield services industry. It operates in various North American onshore basins. Its Completion Services segment includes the hydraulic fracturing services, cased-hole wireline services, coiled tubing services and other well stimulation services. Its Well Support Services segment includes services, including rig services, fluid management services and other special well site services.

C&J trades below ProPetro and also below the average of the other pressure pumpers. Top analysts believe its coiled tubing and cementing businesses could be higher returning than fracking and continue to generate healthy free cash flow generation for the company in 2018.

Jefferies has a $40 price target, and the posted consensus target is $39.77. The stock traded Friday at $33.90 per share.