Oil: New Ideas About an Old Commodity
What wraps up first… Saudi Aramco’s IPO or Trump’s trade war?
Considering how long stakeholders for both events have kicked the can… the reality is nobody really knows.
What we do know, as it relates to oil’s biggest company one day debuting on a public exchange, is this…
The Energy Sector Is Heating Up
Crude oil prices gained 8% from the early October lows.
Energy shares are following suit, up about 6% in the past month.
There’s one sector, however, that offers you supercharged upside potential as the prices of oil and energy stocks rise: oil-and-gas equipment and services!
These are the companies that provide drilling gear and related services to oil-and-gas exploration and production companies. And you know the old adage about the best way to get rich during a gold rush — it’s by selling picks and shovels to the prospectors, of course!
Well, the exact same thing is true in oil and gas services:
These companies sell “picks and shovels” to oil “prospectors” — the drill rigs, pipeline equipment and offshore logistics that make it possible to produce oil and gas and get it to market efficiently.
And Boy… Business Is A-Booming!
You see, the recent surge in oil and gas prices is creating strong upside momentum for energy service firms’ profit margins. And I believe we’re just getting started.
As you can see above, profit margins for the top 50 players in the oil-field service industry have been on the rise. From a 2017 low of 14% to 15.2% in Q2 2019.
Now, that may not sound like a lot, but trust me, if you know this business like I do, you know that there is enormous leverage in the oil-field service sector.
That means even a small uptick in profit margins can translate into millions of extra dollars in bottom-line profits!
It’s an Industrywide Trend
Sixty percent of the top 50 oil-field service companies are experiencing higher profit margins and increased operational efficiency in today’s environment.
The main reasons for the increase in margins industrywide — and why it’s sustainable — are booming domestic shale production and surging exports of U.S. oil and gas.
As you can see above, U.S. oil exports are through the roof, hitting a high of 3.2 million barrels a day this summer. And the uptrend shows NO sign of letting up.
In fact, U.S. exports have DOUBLED in less than two years!
The upside in black gold and energy stocks is just getting started. And your best bet for outsized gains is with suppliers fueling the U.S. oil boom.
Here’s to growing your wealth,