This Left-for-Dead Sector Is Hitting Its Stride

An industry decimated by the pandemic is coming back to life...

Oil-services stocks were in their worst bear market in history last year. The sector fell roughly 90% from its all-time peak to its 2020 low.

But after surviving the crisis, these companies are making money again. In fact, operations are the most profitable they've been in years. And that is likely to continue as the sector rebounds further.

Let me explain...

Plenty of industries were beaten up by COVID-19. But energy was one of the worst hit.

Oil demand fell dramatically as folks stopped driving to work and stayed away from airports. And that crushed not just oil producers, but the companies that help them get oil out of the ground.

Schlumberger (SLB) and Halliburton (HAL) are two of the largest oil-services companies on the planet. They sport market caps of $40 billion and $18 billion, respectively.

These companies work on oil rigs and equipment that extracts oil. During an oil boom, they tend to be the best-performing stocks in the sector. But the opposite is also true when things go south...

These businesses tend to suffer the most when a brutal bear market arrives. When oil companies shut down operations last year, Schlumberger and Halliburton had no business... and profits plummeted. Heck, there were no profits at all.

Today is a different story. Oil is roaring back, currently priced at well over $70 per barrel. And the sector is now profitable once again after those difficult times. Schlumberger's and Halliburton's operating margins are at their highest levels in years.

Take a look...

You can see margins fell through the floor in the last two years. But the chart also shows the sharp bounce back in 2021.

Today, operating margins are at their highest levels in more than five years. Schlumberger's is near 12% for the first time since 2014. And Halliburton's is in the same ballpark.

Investors who wondered if these companies would survive the pandemic have their answer now... heck yes. The major players in the oil-services sector are profitable once again.

These stocks have both risen as a result. But the moves we've seen so far could only be the beginning. Life is getting back to normal. And that's a huge win for these companies.

We can't know for sure how long this new bull market in oil will last. But as long as the boom is here, these companies should continue to thrive.

Energy stocks were left for dead this time last year. But things have changed. Oil-services stocks – some of the worst hit from COVID-19 – are bouncing back... And you should bet this trend will continue.

Good investing,

Chris Igou

Further Reading

Since falling stocks tend to keep falling, looking for value in beaten-up areas of the market is usually a dangerous way to invest. But right now, we're seeing a setup in the small-cap market that could lead to double-digit gains... Read more here: It's Time for a Reversal in Small Caps.

When too many investors pile up on the same side of a trade, the opposite outcome is likely. And with investors hurrying into "safe haven" assets today, the crowd could be missing out on further upside from here... Get the full story here: Don't Rush Into This Popular Bet Today.

Market Notes
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