Oil Service Stocks vs. Big Oil Stocks

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 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 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

2024 IMA Annual Client Meetings

From Twinkies to Rolexes (IMA Client Dinner 2024 Video)

Once a year, we host what the IMA team gently calls “client appreciation week.” This week is very special to me, as I get to meet people who have entrusted their life savings to us. 

Cable Stocks Keep Getting Punched in the Mouth

Despite weakness in cable stock prices, our thesis on Charter Communications (CHTR) and Comcast (CMCSA) has not really changed. We made a small, superficial change in the portfolio.

My Appearance on John Oliver’s Last Week Tonight (Kind of)

This past Sunday, I received a text from a friend who told me he saw me on John Oliver's "Last Week Tonight" show on HBO.
No Shortcuts to Greatness The Path to Successful Investing

No Shortcuts to Greatness: The Path to Successful Investing

One of my principles in life is to have a net positive impact on the people I touch. If every single stock I discussed only went straight up, I wouldn't have to worry about it. But this is not how life works.

Leave a Comment