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If you could pick stocks to buy among the companies tied to the California Gold Rush, miners would not have been your best bets.
The miners were not guaranteed to get rich. While some of them did in spectacular fashion, many went completely broke.
One subset of those who flocked to the region actually did very well for themselves. They were the ones who ventured out not to look for gold but to sell supplies. It may not have been as exciting as digging for gold, but the profits were sure and steady.
Merchants made a fine living and built fortunes selling axes, pans and other items to the masses of gold hunters flocking to the region.
Business was so good that one firm in New York took to the region to sell tents, bedding and denim pants to the miners.
Indeed, young Levi Strauss experienced quite a run of success in this endeavor…
The same profit distribution has been true over the years in the oil and gas industry to some degree. Much like the Gold Rush, there are risks associated with the search for oil and gas exploration and production.
Although they cannot always escape the economic cycle of the industry, the company that sell supplies are not exposed to as much high-cost and risk as the exploration companies are. That’s why many of these suppliers have managed to stay in the black, while the exploration and production companies have struggled for profits.
And it’s why some of the best energy stocks to buy now are the supporting players in the continued exploration process.
Stocks to Buy: Drilling for Profits
Even during times when exploring for and producing oil and gas is not particularly profitable the industry still uses fluids, drill bits, and tubes every day. Activity goes on even when margins are tight and profits elusive.
This often leads to consistent profits for those selling to the industry during weak periods, and explosive gains when the oil market turns higher. We found two stocks to buy now that are great examples of this.
One example of this energy “pick and shovel” play is National-Oilwell Varco Inc. (NYSE: NOV) has remained profitable for many years now in spite of wild swings in oil prices and economic conditions.
National-Oilwell Varco is tied to one of the brightest spots in the oil and gas industry lately: offshore drilling. Its robust activity is expected to continue for several years.
According to the company, 90% of the mobile offshore drilling fleet as well as the majority of land-based rigs use their products to search for oil and gas. The company makes drilling rigs, components, and mechanical equipment used on the rigs. It also supplies drilling pumps, down hole tools, drill bits and other supplies used in the process of searching for oil.
In spite of weak market conditions the company reported a growth in orders of 26% and a backlog increase of 25% last year. The stock sells for just 12 times earnings in spite of the outstanding long-term growth prospects.
When drilling demand picks up in 2014, earnings and stock price could explode higher.
Our second “pick and shovel” stock to buy now is TETRA Technologies Inc. (NYSE: TTI), another oil services company that has enjoyed an unbroken streak of annual profits.
The company sells a wide range of products to the exploration and production companies. It sells brine fluids and additives used in the drilling process, fracking water management services to onshore unconventional drilling projects, and supplies to the offshore drilling industry including well plugging and abandonment services.
Fluid services in particular has been very strong of late as drilling activity returns to the Gulf of Mexico and the rise in offshore drilling activity is a strong long-term positive for this company.
Insiders are positive about the prospects as officers and directors, including the CFO, have been buying shares in the open market recently. It is easy to see why, as the stock sold over $30 before the economy collapsed in 2008 and it is reasonable to expect the shares to trade close to that level over the next five years as the economy and oil demand begin to fully recover.
That would be a 200% gain to where TTI is trading today.
If you want to follow this trend and stay up-to-date on the best energy stocks to buy now, you can learn how our Global Energy Strategist Dr. Kent Moors finds the best profit opportunities in the sector. He sends his Energy Advantage subscribers regular updates on energy’s best investments, when to buy and sell certain stocks, and trends developing under the radar of most investors and mainstream financial media.
Just go here to learn more about his favorite stocks to buy now – including all his double- and triple-digit gainers!