Energy Equipment & Services
This industry reacts to a lot of the same factors as the Oil, Gas, and Consumable Fuels Industry (see the next section below for details), such as the price of oil and natural gas. When the price of oil/natural gas rises or falls, it will usually cause the stocks in this sector to follow that direction. However, there are some other key factors to take into account. The number of rigs available and operating is one. Ideally, you would like to find a company that has all of its rigs being used for drilling, or, better yet, a backlog of orders and a growing rig count. Put simply, the more rigs the company has being used, the more money they are making.
The second thing to look for is the day rates these rigs are getting while in use. Most companies will tell you the day rates in press releases or conference calls, which can be found through a simple Google search. Declining day rates indicates a possible oversupply of rigs, since companies would rather have the rig working for less money than have it sit idle. Obviously, rising rates indicates a rig shortage, which will cause the companies in this sector to grow in earnings simply because they are charging more for the rigs they have.
It is also a good idea to look for news about large contracts, either those being awarded to these companies or those that are taken away, as those factors can move a company’s stock price significantly. There is a lot of merger activity in this space, so any rumors may present opportunities for option plays. Focus on the small to mid-size players if you are going to speculate on a takeover. The real large players will typically go after those types of companies rather than making big acquisitions.
- Flowserve (FLS) -- The company makes valves, pumps, etc.; a high-beta name.
- Core Laboratories (CLB) -- This high-flier helps companies extract more oil/gas from existing wells.
- Diamond Offshore (DO) -- The company has the largest deep-water rig fleet, so the stock has lagged its land-based peers, but that may be changing.
- Transocean (RIG) -- Gulf drilling has started to climb again, and the company is past the Gulf Oil Spill.
- Nabors Industries (NBR) -- Look no further than this land-drilling behemoth to see the effects of shale drilling. It is one of the key stocks in the S&P and up over 24.79% in 2016.
- Noble Corp. (NE) -- This contract driller is getting ready to split into basically a deep water company and a shallow water company to unlock the value of the shallow assets.
- Schlumberger (SLB) -- It does way more than just drill and is more of a soup-to-nuts company that is widely considered the best in the oil patch.
- Halliburton (HAL) -- Sort of a mini-SLB without the great reputation.