The wind is at the back of the Oil and Gas-Field Services Industry as it is poised for growth in the coming year, driven by favorable crude pricing and robust demand for oilfield services. The industry comprises companies that play a pivotal role in supporting exploration and production activities.
Zacks Industry Rank Indicates Bullish Outlook
The Zacks Oil and Gas – Field Services is a 22-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #66, which places it in the top 26% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The oil-services companies provide a wide range of services, including manufacturing, repair, and maintenance of wells, drilling equipment, leasing of drilling rigs, seismic testing, and transportation solutions. They also assist upstream energy players in locating oil and natural gas reserves, drilling, and evaluating hydrocarbon wells.
Therefore, the fortunes of oilfield services businesses are closely tied to the expenditures of upstream firms. Below we highlight why it is time to buy these companies and the related ETFs.
Favorable Oil Prices Boosting Demand
There has been a remarkable surge in oil prices lately, with West Texas Intermediate crude trading at around $86 per barrel. This robust pricing environment bodes well for exploration and production activities, driving increased demand for oilfield services. Oilfield service companies play a crucial role in efficiently setting up oil wells, making them essential partners in capitalizing on the current attractive commodity prices (read: Energy ETFs in Focus as Saudi Likely to Prolong Output Cuts).
Digital Solutions Transforming Operations
Oilfield service players are embracing digital solutions to join the current digitization boom across all sectors. Oilfield companies have been implementing digital platform strategies to accelerate returns and reduce cycle times. These innovations not only enhance productivity and efficiency but also cut costs and reduce carbon emissions, ultimately optimizing cash flows for both service providers and their clients.
Growth in International & North American Markets
The third winning trend is the anticipated growth in both international and North American markets. Favorable conditions in the upstream sector are expected to lead to increased capital spending, further driving the demand for oilfield services.
As countries worldwide invest heavily in liquefied natural gas (LNG) terminals, some oilfield service companies are diversifying their portfolios by securing contracts for manufacturing equipment used in LNG facilities. This strategic move not only capitalizes on the growing LNG sector but also contributes to reducing carbon emissions.
Subdued Global Steel Prices
Since oil prices have been on uptrend for the past few months, there are chances of increased capex by drillers. Steel industry supplies materials to build and expand oil drilling operations. Now, with steel prices currently subdued, oil-services companies have every chance of win out of this situation.
Industry's Current Valuation
Since oil services companies are debt-laden and capital-intensive, it makes sense to value them based on the EV/EBITDA (Enterprise Value/Earnings before Interest Tax Depreciation and Amortization) ratio. On the basis of the trailing 12-month EV/EBITDA, the industry is currently trading at 8.98X compared with the S&P 500’s 13.47X and sector’s 3.49X. Over the past five years, the industry has traded as high as 12.27X, as low as 1.00X, with a median of 7.99X.
ETFs in Focus
VanEck Oil Services ETF (OIH) – Up 16% YTD
SPDR S&P Oil & Gas Equipment & Services ETF (XES) – Up 21.6% YTD
iShares U.S. Oil Equipment & Services ETF (IEZ) – Up 17.1% YTD
Invesco Oil & Gas Services ETF (PXJ) – Up 22.5% YTD
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>iShares U.S. Oil Equipment & Services ETF (IEZ): ETF Research Reports
SPDR S&P Oil & Gas Equipment & Services ETF (XES): ETF Research Reports
Invesco Oil & Gas Services ETF (PXJ): ETF Research Reports
VanEck Oil Services ETF (OIH): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
