Oil Service Stocks vs. Big Oil Stocks

T. Boone Pickens knows oil better than most people out there, definitely better than me. However, his calling into CNBC seemed like a desperate attempt to influence oil prices. I’m not a big fan of large oil companies as most of them have little or no organic production growth and they are completely at the…

T. Boone Pickens knows oil better than most people out there, definitely better than me. However, his calling into CNBC seemed like a desperate attempt to influence oil prices.

I’m not a big fan of large oil companies as most of them have little or no organic production growth and they are completely at the mercy of oil prices, but I am getting interested in oil service stocks for several reasons:

Oil service stocks are not as sensitive to oil prices as long as prices stay about $30+, oil companies will be making holes in the ground at a nice pace.

They are better businesses – oil companies need to spend billions of dollars just to replenish their reserves (maintenance capex), then they have to spend billions on top of that to grow sales – not great businesses. Oil service stocks are on the receiving side of this capex and have relatively small maintenance capex. If the industry’s growth slows down, oil companies will still be spending billions on capex to replenish dwindling reserves (good for oil services stocks), where oil service companies will see a tremendous increase in their free cash flows which means high dividends and share buybacks.

Please read the following important disclosure here.

Related Articles

Why I No Longer Mind Losing an Argument

Why I No Longer Mind Losing an Argument

Reflecting on my experience with Dale Carnegie's book, I share how it transformed my approach to criticism and debate, and why I no longer mind losing an argument.

How do I get any research done since I travel a lot?

I get asked at times: How do I get any research done since I travel a lot? To answer this question, I need to explain how we do research.
The Growing Pains of Maturity

The Growing Pains of Maturity

Many times, we bought because they were in their “junior year”; this is what made them undervalued. Our research led us to the conclusion that their difficulties were transitory and that as they matured the market would revalue them.
What is the Value of Apple? How do we evaluate risk?

What is the Value of Apple? How do we evaluate risk?

Today I will share the Q&A section of the letter. Every time I am almost finished with the client letter, I ask clients to send me any questions they have about their portfolio or other topics. I answer these questions in the Q&A section.

Leave a Comment