Like many stocks in recent weeks, Lufkin (LUFK) has sure been a roller coaster. After recommending the stock back in July at about $78, the stock soared after an exceptional earnings report, only to completely collapse over the last week or so in the broader oil/commodity sell-off. Given sharp share price drop, I thought it might pay to take a step back and run an earnings stress test on LUFK assuming oil prices continue to decline dramatically. Interesting, this type of stress test can be done for many other oilfield service shares, in order to determine potential downside in the event that oil prices do not stabilize (an unlikely scenario in my opinion).

Lufkin Industries (Nasdaq: LUFK, Market Cap.: $1.1 billion) is an oil services stock that could move 50% higher by year end, with minimal downside risk. Importantly, the first catalyst for an improving share price may come next week when the company announces second quarter fiscal 2008 earnings. We believe that the upcoming report will finally be the start of renewed earnings momentum at the company after nearly two years of sluggish growth. Notably, LUFK is sitting on $100 million in cash and has no debt.