In early May, I wrote “Major Oil Industry Inflection: The Bottom of the Rig Cycle”, arguing that drilling activity had likely bottomed and was beginning to recover.
That recovery now appears to be underway. The U.S. rig count has started rising as producers respond to higher oil prices:
If oil prices stay at current levels or move higher, the gradual recovery we’re seeing could turn into a much stronger oilfield services (OFS) upcycle. But not every OFS stock offers the same risk-reward.
In early June, I wrote about one highly leveraged OFS company that I chose to avoid because its interest expense and capital spending were consuming all of its cash flow, and the company needed a very strong cycle just to become financially healthy.
Since publication, the stock has badly underperformed the broader oilfield services index, as measured by the OIH Oil Services ETF:
Below, I provide an update on this company and identify four OFS stocks that I think are a better way to play the OFS recovery.
Disclaimer: This is for informational and educational purposes only. This is not an offer, solicitation, or investment recommendation. Please consult an advisor and do your own diligence. Past performance is not indicative of future results.
