When oil services stocks boom, they REALLY boom… and investors make fortunes.
With decades of stock market history at our disposal, that’s the conclusion reached by my soon-to-be introduced True Wealth Systems advisory.
Oil services companies literally “service” oil wells. They maintain, repair, and manufacture equipment for drilling, and provide research and advice. And when these stocks start booming, they really boom.
The chart below shows it. Going back 70 years (as far back as we have data), our strategy for trading oil booms and busts compounds wealth at a 19% annualized rate when in “boom” mode. That’s nearly two-thirds of the time.
[ad#Google Adsense]Since the late 1980s, oil services stocks have had a history of bottoming out at a low price-to-book ratio before taking off for triple-digit gains.
On three separate occasions since 1995, oil services stocks have bottomed around two times book value and peaked at over four times book value.
It’s happening again… Oil services stocks bottomed below two times book value in 2009. But we’re still nowhere near the top. We’re nowhere near four times book value. Take a look at the chart…
Sure, oil services stocks have had an extraordinary run recently. But when you take a look at the chart, history shows us there’s plenty of upside from here – triple-digit gains are possible from current levels.
To double-check, we can size up oil-services stocks in another way… on a price-to-earnings basis. The picture is similar…
Oil services stocks have traditionally been a bargain whenever they sell for less than 20 times earnings. As the chart shows, oil services stocks have dipped below that level a handful of times in the last 20 years. It’s typically led to triple-digit gains.
So while it’s undeniable oil services stocks have soared in recent months, these charts confirm they’re still not overpriced – there’s still room to run.
Could a short-term correction hit oil services? Sure… But as you can see, these stocks are still cheap relative to their history. And oil prices, which drive these stocks, are still in a major uptrend. That means it’s time to be long this “boom and bust” group of stocks. We are in True Wealth Systems.
Good investing,
— Steve Sjuggerud
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Source: Daily Wealth