Value investors are constantly searching for cyclical bottoms in various industries, searching for beaten up companies with solid fundamentals, strong balance sheets, and the ability to take advantage of the next cyclical upswing in a given sector. With the oil & gas sector remaining one of the hardest hit over the past two years, finding the right companies to invest in, assuming a continued sector-wide rebound, is not an easy task.
That said, some companies currently trade at valuations which are too cheap to ignore; among these is oil and natural gas drilling company Precision Drilling Corporation (TSX:PD).
Precision drilling is in the business of (you guessed it) drilling wells and providing oilfield services to a range of companies based in North America. As the price of oil has taken a sharp hit in recent years, oil & gas companies have cut their capital expenditure budgets accordingly, impacting drilling companies perhaps the hardest.
Oilfield services companies such as drilling tend to have some of the highest correlations to the price of oil in the entire oil & gas sector due to the fact that the revenue and earnings of said companies are directly linked to the discretionary spending of large players in the industry.
The good news is, as budgets for many oil & gas players begin to expand, Precision Drilling will stand to benefit the most from a cyclical upswing. For those bullish on the broader oil & gas sector, Precision Drilling may be the way to play the rebound.
Invest wisely, my friends.
