The Energy Play Investors Can’t See
No one in the world is safe from rising oil prices.
Recent estimates expect global oil and gas investment to grow to $628 billion by the end of 2022. Investors are scrambling every which way to find the best energy plays before costs really take off – but many are missing a key opportunity one step removed from the oil drillers they love so much.
I’m talking about oil services. Companies that make all the products drillers need to stay afloat. Companies like Schlumberger Limited (NYSE: SLB), a Texas-based oil company.
Unlike exploration companies that drill for oil and sell it into the global market, SLB merely provides the equipment for the drilling operations, which means its performance is less tied to short-term energy prices and more tied to longer-term energy demand.
For all of 2021, I was on the record as saying inflation would be far more than transitory, and now even the Fed has finally accepted that the current inflation is more systemic than transitory.
That’s good for energy companies, and it’s good for Schlumberger.
On Friday, SLB released its fourth-quarter results that beat analyst expectations.
Earnings jumped 86% to $0.41 per share, with revenue up 13% to $6.22 billion – furthermore, international revenue rose 5% quarter-over-quarter to $4.9 billion. North American revenue rose 13% on the quarter to $1.28 billion, outpacing rig count growth.
“[…] the industry macro fundamentals are very favorable, due to the combination of projected steady demand recovery, an increasingly tight supply market, and supportive oil prices,” said CEO Olivier Le Peuch in the earnings release. “We believe this will result in a material step up in industry capital spending with simultaneous double-digit growth in international and North American markets.”
To his point, output out of the prolific Permian basin, which can be found in West Texas and New Mexico, soared to a record 4.92 million barrels per day in December. And total U.S. rig counts are up by 228, bringing the total to 601.
At this point, I like buying the SLB May 20, 2022 $37.50/$40 Call Spread for $1.00 or less. Plan on selling the SLB May 20, 2022 $37.50/$40 Call Spread for a 100% profit, or if shares of SLB close below $33.00.
I’m also watching Netflix Inc. (Nasdaq: NFLX). The company reported its fourth quarter results that included revenue of $7.71 billion which aligned with analyst expectations and represented year-over-year growth of 16.0%. On the bottom line, earnings for the quarter came in at $1.33 per share, up 11.8% from the same period a year ago.
For the quarter, global paid streaming memberships rose 8.9% year-over-year to 221.8 million. That represents an 8.9% increase over the same period a year ago, but it’s the second slowest pace of growth in at least 14 quarters.
Even though the company’s quarterly financials looked good, the slowing subscriber growth is a problem. For years, NFLX had a considerable first-mover advantage. Yet the streaming space is increasingly competitive, including rivals like Apple TV+, Disney+, Amazon Prime Video, and HBO Max.
NFLX opened Friday’s session down more than 21% on the Q4 results. That’s a big drop, considering the company is the dominant player in the streaming space, so I wouldn’t be surprised if we see some bargain hunting early in this week’s trading. Longer-term, though, I think the combination of slowing subscriber growth, increasing competition, and a rising rate environment is going to drive shares lower again, at least over the next six months.
If shares of NFLX trade back up to $500.00 by February 18, 2022, let’s buy the NFLX May 20, 2022 $485/$480 Put Spread for $2.00 or less. Plan on selling the NFLX May 20, 2022 $485/$480 Put Spread for a 100% profit, or if shares of NFLX close above $550.00.
And that’s what I’m watching. What about you? Tell me all about your favorite stocks right now at firstname.lastname@example.org. There’s a chance your stocks will be featured in Friday’s Buy, Sell, or Hold.
I hope to hear from you,