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The oil and gas services sector in Canada has a compelling story that investors have embraced in spite of a potential overvaluation.

As the workhorses of the energy sector, these drillers, pumpers and frackers have been prime beneficiaries of an oil and gas revival in Canada this year. Prices rebounded, investors returned and services stocks soared.

Then the industry relapsed.

Benchmark natural gas futures in particular have returned to the basement, falling by almost 20 per cent since April. Oil futures have also been hit, declining by 10 per cent in the past two months.

"We've become much more concerned about the gas price," said Rafi Tahmazian, a senior portfolio manager at Canoe Financial, who had been optimistic about oil field services stocks before the recent commodity weakness.

The stocks have dipped accordingly, in what could be just the beginning of a substantial correction, Mr. Tahmazian said. "They're only down 15 per cent. A big correction is 30 per cent."

As recently as April, the prevailing concern was for a shortage of natural gas as a result of depleted storage following a brutal winter. That cold stretch succeeded, at least temporarily, in lifting gas prices from the two-year stupor, largely as a result of the industry's technological transformation.

Horizontal drilling and hydraulic fracturing gave producers far greater access to vast reserves.

When gas futures rose by 33 per cent between November and April, that new capacity was fully engaged.

Exploration and production companies were flush with cash from the commodity spike, as well as from having raised money in a flurry of oil sands deals and initial public offerings.

"That means cleaner balance sheets and expanded drilling programs," Mr. Tahmazian said. "That's what made me bullish on services."

Investors felt the same way, pushing up the sector's stock prices with few exceptions. Between April, 2013, and this July, FirstEnergy Capital's oil field services index rose by almost 70 per cent.

That rise was only partially interrupted by the drop-off in natural gas prices precipitated by the cooler summer.

"Since April, the services companies have rocketed ahead of commodity prices," FirstEnergy analyst Kevin Lo said in a recent note. "We can potentially see a relative correction back to where commodity prices are today, even without any further downdraft in commodity pricing."

There are, as always, dissenting opinions.

Even many of those bearish on the sector will admit that the long-term fundamentals for oil and gas services companies are promising.

The shale gas revolution in North America will persist and will sustain the services sector indefinitely, said Philippe Capelle, vice-president, equity, at Standard Life Investments. "Because you've improved the technology, it increases the demand for pressure pumping, for fracking capacity, for liquids. This is not going to go away."

Plus, a number of large liquefied natural gas projects are being considered for Canada. Malaysia's state-run energy company Petronas is in talks for a development that includes an export terminal to ship LNG from British Columbia to Asian markets.

"It doesn't happen very often that you have such a big event that can move an industry," Mr. Capelle said.

One of his top picks is Secure Energy Services Inc., which handles oil field waste products, and which not only surprised the Street with strong second-quarter earnings on Tuesday, but also announced a strategic acquisition, triggering several target price hikes.

Secure is also Mr. Lo's top pick in the sector as a company that has less commodity exposure than drillers and that "we believe will grow in most environments." He has a target price of $29.50 on the stock. Of the 13 total analysts covering the stock, 10 rate it a "buy," at an average target price of 28.83. That represents a 14.5-per-cent premium over Thursday's closing price of $25.17.

Mr. Tahmazian said Secure is one of the few services stocks he still holds, saying he thinks the company could offset sector weakness with increased market share.

He's not optimistic for many other companies, however, preferring to wait on the sidelines to see if they correct further, he said. "Then you go back and put the money to work in some of the good names."