Waking Up to the “Drill Baby, Drill” Dream

I first pointed out the opportunity emerging in traditional energy companies in August.

As the Magnificent Seven lit up the charts with AI potentiality, energy stocks fetched the cheapest valuations across all sectors.

From August 14, 2024. Source: ISS Investor Express, The Capital List

It’s not that energy stocks didn’t deserve a low price. The Biden Administration had spent years discouraging drilling, and Trump’s election victory was far from a lock. Although The Green Dream was fading fast, the market was unclear about what would replace it.

But with Trump back in office, clarity around a new dream has taken shape—“Drill Baby, Drill!”

Oil and gas leases will soon be rolling of the President’s desk like executive orders. And the energy companies rushing to capitalize on the opportunity will look to equipment and service companies to drill those wells and get the oil and gas flowing.

Here’s what you need to know about this hot sector soon-to-be lighting up your stock charts.

Get That Oil Out of the Ground

Energy equipment and services companies provides the tools, technologies, and expertise to extract, produce, and manage oil and gas resources.

They run the gamut of the energy supply chain, supporting upstream activities (exploration and production) and midstream operations (transportation and storage).

At the source of that stream you have the drillers. They specialize in drilling wells for oil and gas extraction. Advanced rigs, automated systems, and directional drilling technologies enable access to complex reservoirs in onshore and offshore environments.

Completion and production step in after the drilling is done to optimize well output. Hydraulic fracturing, cementing, and artificial lift systems are examples of solutions that enhance recovery rates from reservoirs.

And wells aren’t a set-it and forget it kind of thing. They require routine maintenance, workovers, and interventions to ensure wells remain productive over their lifespan. These services include coiled tubing, snubbing, and wireline operations to address technical challenges.

I’ve spent the last few days pouring over the sector looking for specific opportunities, and I see an interesting play developing in RPC Inc. (NYSE: RES). The company specializes in unconventional shale plays, such as the Permian Basin, where hydraulic fracturing and precision intervention are critical.

Their competitive profit margins and spread to capital outperform 71% of energy stocks and generates a high 10% return on capital. Plus, its 9% debt-to-capital ratio ranks it among the lowest leveraged companies in the sector.

There are other stand-out opportunities too. Nabors Industries (NYSE: NBR), Helmerich and Payne (NYSE: HP), and Cactus Inc. (NYSE: WHD) look like excellent opportunities to target the boom in drilling headed our way.

It’s Time to Act

The energy sector will roar back to life under the “Drill Baby, Drill” banner and equipment and service companies like RPC Inc., Nabors Industries, Helmerich & Payne, and Cactus Inc. are poised to ride the wave of increased drilling activity fueled by new leases and light regulations.

Whether it’s RPC’s focus on high-margin shale plays or Cactus Inc.’s advanced wellhead systems, these firms are critical to turning policy momentum into profitable production.

The energy equipment and services sector will power the next chapter of American energy dominance. With valuations still attractive and the market finally catching up to the reality of renewed drilling, it’s time to start building positions.

Think Free. Be Free.

Don Yocham, CFA

Managing Editor of The Capital List