3 Energy Stocks You'll Wish You Bought on the Dip (Plus 2 to Avoid)

Energy stocks may be dropping, but what's happening behind the scenes points to more action still to come. Joining us today is Rob Spivey and Joel Litman with Alimemetry Research. So glad to have you both back on the show. We have a lot to cover today and we are talking about three energy stocks that have a ton of potential. Again, really quiet potential that many investors aren't paying attention to right now. and then we're going to talk about two stocks related to the energy sector that are definite sells right now. Before we get to those names, Joel, I want to start out with an overview of what is happening in energy right now. A lot of these stocks are down significantly just this week. Of course, there's been some different headlines happening with the Iran conflict, but there are some other numbers happening behind the scenes in the energy sector that have nothing to do with Iran, but could have a lot to do on the future potential of the stocks you have on this list today. So what is that Joel? >> I think the big deal is that you're seeing an announcement of rig count increasing in the United States meaning more drills more drill baby drill and that's after several years of actually rig count falling. We don't think it's a knee-jerk reaction to the straighter hormuz. I mean certainly you know there's some permanent issues that are coming out of the straight muzz not just if it opens that are going to lead to higher oil prices but there really is a re-industrialization of America that's going on and so um that's going to require a lot more energy. It's going to require more oil and certainly helps the US to be even less oil dependent on other countries. >> This is an absolute big story because it's the first time we've seen this trend in quite a few years. So, you already mentioned some factors as to why. Let's talk a little bit more about why we're seeing this sudden turnaround in demand. It isn't as easy as let's just look at the price at the gas station right now as a as a consumer. Is that the real catalyst that's here or is there more going on? We'd argue that really what happened here was the trader hummus and the the disruption that's happening pulled forward what was going to be inevitable for both oil and natural gas um exploration production companies between the AI power buildout between the re-industrialization United States we know we need a lot more oil and we need a lot more natural gas and then what happened was it's clear that the oil and gas companies in the United States looked out and said okay we know that these prices are going to be higher for a little longer than people realize the XLE right the The energy ETF has actually outperformed the S&P 500 and technology stocks since the beginning of the year. What we really look at is a lot of that move happened because people were thinking about the natural gas story, not this new oil and natural gas story that's doubled up on top of it, which we think is why there's such an urgent exciting opportunity happening here. >> Yeah, and you can see that in the stock prices of the the stocks we're going to get to right now. And I'm excited to get into those names. These are the picks and shovels plays, a couple of them anyway, of the ones that are getting that direct investment right now as this new construction is underway. So, we're going to get to the three buys before we get to the three sells that Joel has for us later on. I do want to share Joel's special report. Alimmetry Research is really diving into this energy story and the incredible demand that we're seeing right now and the creative solutions that many companies are turning towards to help fill this energy demand. If you want to check out that special report from Joel and Rob at Autommetry Research, it is a free sign up, you can just scan the QR code or click the link in the description and get that free report on the dark energy story. It's an energy solution that Elon Musk and his team are working on. And again, it's definitely happening behind the scenes. So, you can get that free report now. It's super interesting. I took a look myself, guys, and it's really great research from you. And that is what I am excited to dive into on the stocks we have for our viewers today. Rob, let's get to that first company that you are looking at in the energy space that is a good buy right now. >> Yeah. The first one is Pro. So, what ProPro does, thicker pump, is uh this company, their reason for existence primarily is what's called completion services. They come in when you've got an oil or a natural gas well. They help you punch the holes in the ground to basically frack and everything. But then more importantly, they help you finish it, to pour the concrete, to lay the piping, to do everything to make sure that it that it's ready to go and can start producing. First off, that's been a tough business for the last few years, as we mentioned, because everybody's been rolling down these duck wells. And so, Proetrol looked around and said, "Well, you know, to do all this completion work, there's some asset that we own that's really important, which is we need to have all these generators, these engines that run our completion fleets. If prices aren't great and nobody really needs to use our completion fleet, you know what we can do? We can take some of those generators and those generators break even at about what's called $55 to $85 a megawatt hour. And they said, well, we know a group of people who need power who are paying more than $55 to $85 a megawatt hour for their power. That's AI data centers. So, they've taken out a chunk of their fleet and they're actually leasing it to AI data centers. And that's what's actually caused the stock to have a phenomenal rally the last year because of the fact that people are seeing that happen and saying, "Oh, this is no longer just an oil and gas company. This is now a power generation company with stable demand for multiple years." But then what's really excited is when you do that, what you're doing is you're taking capacity out of your fleet. And so right now, if we have a really strong, which we think we will, investment cycle in oil and gas, they're also going to have a whole bunch of people who are dying to have access to their to their completion services and they're going to have less of it, which means they're going to have higher day rates. So we could see return on assets for this business explode higher. And so when we look at it, Bridget, what's so exciting for us is even after the run the stocks had, this is a company that as recently as 23 and 24 had return on assets of around 15 to 20%. The market is currently pricing this company for return on assets to get to 5 to 10%. And if you stack the AI data center demand on top of the surge in investment that we're going to see in oil and gas, you're going to see ROAs way higher than that and this company's going to have to repric even higher and the market's totally sleeping on it. >> Yeah, that's such an interesting story that this is no longer just an oil and gas story. I think any company that helps produce energy in any way is absolutely a part of that AI story because there is such demand right now. So that is absolutely showing up in their books. Let's talk a little bit about the recent earnings report for this company because I think it tells a huge story that's very different from what the chart is showing today for this company. >> Yeah, Bridget, absolutely. And you look what what came out in this most recent quarter was really important was was all about pro power. So, what Pro Power is is what they're doing into data centers. And they signed they've already announced that they've signed a whole bunch of contracts because they were already in the middle of reinvesting in their fleet of power generation to go electric. And so, they already had an order book with Caterpillar to make sure they were going to have a ton more a lot of more megawatts of capacity of generators coming on that they were going to use with their fracking fleet. And now they're able to redirect those. And they're in the process of signing deal after deal after deal with these data centers. And that's what's helping get the the that's what's helping improve earnings and getting the stock price so excited is that this is a company that has the runway to be able to actually generate that kind of profitability that's going to grow for a while. >> So, as an investor hearing this, I think there's a lot of exciting things to dive into. I I want to talk about my consumer cell for a second. When I hear the cost of electricity and the cost of gas being expensive here, it all sounds like it's more expensive to produce all of this right now because of the demand out there. So, my consumer hat goes, is this a good thing? But as an investor, this is a good thing because it shows that there's a lot of demand coming down for this company. And that's why I'm so surprised about what is happening with the stock price. There's almost a 10% pullback in the last week on this one. What is that pullback about, Rob? Everybody has started to attach all these stocks to the straight of her and the Iranian conflict narrative that magically when things open, oil prices are going to drop down to 50 or $60 and they're not. And so, and that's and that's part of what's causing this is that overreaction there, not understanding how long this investment is. But Bridget and u I think that there's actually a really important thing to be able to speak about to you as a consumer also and it comes to the idea of where oil prices are and how sensitive the economy is in the US economy is to oil and also what really those thresholds are and Joel I know you've been talking about this a lot in terms of where we need to worry about oil prices for the consumer and not and whether or not it's that big of a story for the US. Well, one of the things that people the narrative people said is if the straight home moves doesn't get fixed, could we have another 1970s? But the fact is in 1970s energy stocks were 30% of the S&P 500. Today they're just like 5%. In the 1970s, in terms of total consumer spending, just your gasoline might be 10% of your discretionary income, 10%. Um, today it's it's in the single digits. It used to be that a 10% move in the price of oil could be a literally 3% move in inflation. So a 30% move in oil could be a 9% move. 9% move in inflation. We're not in the same age that we were in the 1970s. We're not in the same era. The US has become a lot more resilient, a lot less dependent on oil. The US consumer is a lot less dependent on the price of gasoline. Even though we notice the price at the pump as a percentage of our incomes, it is a heck of a lot less than gasoline was a percentage of our income in the 1970s. And so when you adjust for all those things, you say no wonder that the straight her moose is an issue, but it's nowhere as big an issue. And it's why even though the price of oil has gone up, the US stock market right in the last couple weeks has hit all-time highs. >> It's such a great point to to bring up. We are not in the same place as that 70 situation. I think that's a great piece of information to keep in mind for investors as they start to panic about what oil prices are doing. Uh really good calming information, Joel. Thank you for sharing that. All right, let's move on to the second stock on this list today and we are still looking at more of that picks and shovels in the oil and gas industry. Right. >> Exactly. Yeah, we're looking at Baker Hughes, BKR. And Baker Hughes, right, when we talk about Petrol Pump, they're specialist. Baker Hughes, when you think about oil and gas, they're everywhere. I mean, there's a reason why when when we talked about that that that that uh that drill rig count stuff that literally comes from Baker Hughes. Baker Hughes reports that information that everybody on the oil and gas industry hangs on in terms of paying attention to and it just shows you they they are when you think about anything in oil and gas, if you're going to see more investment, you're going to see them. But they've got an extra benefit from this too, which is one, if we need to re rebuild the um the the cutter the cutter LG trains, right, for LG exports, Baker Hughes is one of the only suppliers who makes any of that equipment. And what's really interesting about this one is this is a company that when we look at it on a cleanup uniform accounting basis, return on assets is more than double what Azure reported metrics say. Azure reported metrics say it's like a 5% return on asset cost of capital business. We know it's closer to 15%. and the market at current valuations for Baker Hughes is basically pricing return on assets to drop not realizing all of these really bullish catalyst for the company that we see coming down the pike. >> Yeah, I love hearing your accounting perspective too. I think that's a great way to look at these companies uh even deeper than what just shows up on that initial earnings report, the the basic numbers that you see. I think the one thing that really stood out to me that you said about this company is that their hand is in every single oil rig that's going out there. They they're in they're in everything and so of course they're going to benefit as more rigs and and more investment is going into building the infrastructure here in the US. Do they also have a connection to the energy and demand and the AI data center story? Are they a part of that as well? >> Any of the times that you're going to basically have this buildout happen that is relying on energy bigger Hughes is going to benefit. And they've got some stuff that actually does touch on the AI data center part of the narrative. But the bigger part is how if you're gonna need more power anyway that you're going to need it, you're going to need more of the downstream effects, they're going to benefit. >> I often ask my my students in my my courses and I'll say, "Name one company from the gold rush. Name one gold company from the gold rush." And so, of course, what you found is that it wasn't just the companies that survived till today that were picks and shovels and actually wheelbarrows and other things. It was also the clothing, the banking, the food, whether it's Levis's, Wells Fargo, Armor Swift, Girardelli chocolate company got its start in 1849 selling chocolate to gold miners. So you can go and find all these companies that it's the food transportation. So when we say picks and shovels, we mean anything in the ecosystem that's going to benefit. We don't have to make a bet on whether Exxon or any of the big oil companies are right in building the rigs. We only need to know that they are building the rigs and other companies are going to make money whether oil stays at 85 or comes back down to 50 because those rigs are still going to be there and that that the all the services like Baker Hughes are needed to build in. So when we say picks and shovels, we're looking at a whole line of things other than picks and shovels that could be supporting that. >> I love that point Joel too that you are batting on the companies that are already getting that investment. The contracts are already inked. they've already got their supplies going out the door. And so no matter what happens with that uncertain aspect, which is the oil prices, these companies are still going to benefit. Could they see a slowdown a couple years down the road if those contracts stop coming in? That's maybe a potential. I'm not sure. But I also I I think it's a great point that the the money is coming in the door for these companies. I think it's a great way to look at investing without picking a winner uh in in the big mainstream names. Given all the good things you guys have shared about this stock, let's talk a little bit more about the entry point of where it is right now. Do you think that the pullback that we're seeing in this stock as well this last week is enough of an entry point to make it really attractive for investors to see some solid returns on this company? >> We always talk about this idea of embedded expectations, right? And so we're always looking at what is the company doing, what can the company do, and what is the market paying for the company to do. And for Baker Hughes, this is a company that, you know, again, 24 and 25 weren't great years for profitability for oil and gas companies. And yet, Baker Hughes even then had a 16% return on asset. The way that we look at it, what the market is paying for Baker Hughes to do right now is for Baker Hughes to have a 10% return on asset going forward, give or take. Um, and so when we look at that, we say, "Wow, if we think about all of the tailwinds that we have for this company, as we talked about, the trader is not the catalyst that people think of in terms of oil prices dropping to 40 or 50 and natural gas prices dropping to $2. That means that everything is going to be resolved. These are big lasting trends that are going to pull on demand for Baker Hughes. And so, yeah, we think ROAS could go higher for Baker Hughes. And as it does, that means a lot more upside from here. So yes, 100% with the stock having pulled back a bit from the highs that it had made a week or two weeks or 3 weeks ago, we think this is a good opportunity to get in a little more. Absolutely. >> All right, let's move on to that third name you have as a buy in the sector before we move on to those two to avoid and Joel's going to cover those for us here in a second. Rob, what's that third stock to buy in the oil and gas sector right now? >> Absolutely. And that's Liberty Energy. They are the biggest player in completion services in the United States of America. They're bigger than Petrol Pump. They are dominant in terms of this this situation. So they have the exact same story as Petrol Pump. But what's really interesting is they're a little bit behind Petrop Pump in terms of people understanding the story, but they have 100% done the exact same pivot that Petrol Pump has done into selling power into a constrained market where these data centers that are going up across the United States and especially in Texas, right? In Texas, in West Texas, you have a ton of these data centers being built because you've got access to natural gas, you've got wide open land, you've got access to water, and frequently you've got fiber optic cables that are running across the United States from there all over the place. So, it's a perfect place for them to build these data centers. So Liberty just like Petrol Pump is selling their generative capacity into that market just when we're about to see again another big catalyst h happen in terms of demand for their services in their traditional market which is going to send profitability and returns higher. Currently the market is paying for Liberty as a Liberty's return on assets is never going to get above 5 to 6% ever again. The return on assets for Liberty is going to sit at 5 or 6% going forward. And we look at that and we go, well, hold on. We've got this investment cycle again. We've got the same story as petrol pump with stability in terms of this underlying now demand for their power that's going to be lasting for multi-year. It's not the cyclicality that people worry about oil and gas. You put all that together and this is a slam dunk for us in terms of where we see upside. >> Yeah, I think this the historical stat is really telling right there about when they saw the investment spike, this company had a huge return on assets. And I think let's talk about that timeline right now for the spike that we're currently seeing. What's the timeline for it actually showing up on their books? >> It all happens fast and it ramps up fast. So, we're going to see this happen and start to appear on Liberty. Limited supply leading to spikes in day rates happen really, really quick. >> Yeah, that timeline I think is important to look at. It's also another one where you want to look at the chart right now and look at the potential entry point for this one. This whole week has been a really significant pullback in all three of these names. And so that's why this is such an interesting time to be talking about potentially buying this little dip that we're seeing in an an otherwise very booming sector. Again, don't forget that stat that you shared that this sector is actually outperforming big tech uh for the start of 2026. But not every stock in the sector is performing that well. And Joel is going to cover two of those names for us right now that are too to get out of in related to the energy field. Now Julie, I also want to talk about your special report again because I think the thesis has just been proven in what we just talked about and that is there is so much demand for energy with all of the AI data center demand that a lot of unique ideas are coming out to try and solve that and you did a special report on a major prediction for a dark energy product that could change the whole AI energy story. Again, if you want to get that free report, you can scan the QR code or click the link in the description and get that report from Professor Litman totally free right now uh by following that link. All right, Joel, let's get to these two stocks to avoid right now in the energy sector. What is the first name you're looking at? >> Yeah, Bridget, I I get the stocks to avoid so people stop inviting me to their conferences. Rob gets to stay the stuff that we like. You know, I'm the one that has to take it on the chin saying stay away from these companies. But the fact is the cost of fuel is going up. the oil rig count and other things are telling us that it will stay elevated. We're not going to see it coming back all the way down. There are permanent issues that are happening globally that will lead to higher costs of fuel and that also means cost of fuel for companies like Royal Caribbean. And so Royal Caribbean first, just so that management doesn't completely, you know, dislike me, Royal Caribbean has done a fantastic job coming out of 2020, 2021, a fantastic job where, you know, no one wanted to go on cruises and Royal Caribbean is a little bit upper scale from like a Carnival. Um, I think they've done a great job filling the boats. Under uniform accounting, the return on assets has hit, you know, 10, 11, 12, 13%, double what you'd see under GAP accounting, meaning they really are double as profitable, double as profitable as what's reported in Wall Street and whatever. So, I'm giving them props all day long for wonderful performance. The issue is the stock topped out around 360 plus a share in just the last year. It's down to 280 and I'm worried that people think, oh, this is an opportunity. It's a buying opportunity. It's it's why wouldn't it go back up? And we're saying even at 280, the expectations built into Royal Caribbean are that it's going to have unbelievably profitable um couple of years despite the headwinds which are one consumers, you know, I think trading down to lowerc cost products and Royal Caribbean is a little bit of a higher cost family product versus a more discount, I'll say party boat. Not that they don't have their party boats, but on balance, that's not their average. but also uh that the the cost of fuel, which is a big deal for these ships, right? The cost of fuel um is staying up. And so I can't see them raising their prices, but I can see their costs going up, which means I'm not saying they're going to be bad. They're just going to be less profitable than they have been. And the stock weakness from 360 to 280 is probably more of a permanent issue. Um I wouldn't look at as a buying opportunity. If you're holding it thinking it's going to rebound, uh my gut and our analysis would say probably just get out and uh cut your losses where they are. >> Interesting. This is a don't buy the dip story here because like you said, they've been doing well. They had a really interesting turnaround story for sure. But I think you make a great argument about the the profit margins for Royal Caribbean and potentially other cruises out there. I've been listening to several interviews from CEOs of companies in the restaurant field and many different areas that are deeply impacted by the rising cost of fuel and they're trying not to, like you said, pass that on to their customers. The consumer right now is very cost-sensitive and so the companies are trying to eat those but again exactly as you said that will take away from the margins of what they're able to make. Do you see that turning around at all um just by the economy and how resilient the US consumer seems to be right now? Um or do you think that there's a a case to be made there that despite what happens, consumers are investing in travel and things like that? Do you think that there is an alternative way to look at this or or not really? I think consumers are still traveling, but they're they're seeking more discounted things. And I I think not just at 360, but even at 280 a share price. It still requires increasing levels of profitability over the next 5 years. And the headwinds would say it's more likely flat to down. And that's not a stock that you want to own. When it's embedding already, increasing profitability, they may, you know, not be able to get those hit those expectations. >> Well, that's the first company to avoid buying on this dip right now. Let's talk about that second company that you are saying is potentially a sell rather than a buy right now. >> So that's yeah that's the first set of conferences I'm going to be disinvited from is all the c you know the cruise line conferences now I'll be disinvited from the airline conferences also because you know unlike Royal Caribbean which we give them props JetBlue of course took it on the chin. They really took it on the chin back in 2020 21 like all the other airlines but they have not seen a recovery from COVID to this date. on a uniform accounting basis the return on assets for JetBlue of course they went negative in 2020 21 but they've stayed negative they have not recovered other airlines have other airlines have been able to do something so JetBlue is caught in a situation where it's sort of the opposite the stock is up because with Spirit going under they're like oh Spirit goes under market share is going to acrue to the other airlines and so people kind of feel like JetBlue is going to do all right from this but you know I would call this more of a deadcat bounce that they're getting the benefit in the news. But the issue is from where JetBlue stock price was 5 years ago, I mean, it is down 70 80%. And yes, when it's down that much, popping 30% looks like a lot, but popping 30% from here is not the same thing as falling 70 80%. It's a geometric mean issue when when looking at and so we wouldn't want people to get overly excited about JetBlue. They still have some serious fuel cost issues. This is one of the cases, you know, Bridget, you brought this up. You said you said what's sometimes great for the stock is not good for the consumer. Well, I think JetBlue, again, to give me props, is great for the consumer. Their business class has done wonderful things to keep down the cost of business class for everybody. The problem is they're providing what I'd call a product that's better and more costly than the other airlines, but at a price point that's still discounted and less than the other airlines. So, the issue again is, are they good for the consumer? I'm telling you, I love JetBlue's product. I'll say it all day long. As a consumer, I wouldn't want to buy the stock. >> Yeah, that's a great point to make. The reverse is always true, too. So if it's if it's not if it's good for you, it's maybe not good for business. And I think that's a great way a great thing to keep in mind when you think about all investing in general. Guys, this has been a really great discussion. We've covered a lot of ground today and a lot of different names. So thank you both for sharing all of these. Joel, thank you for for taking the the ones to avoid because we hear from our viewers all the time that it is just as important to know uh what not to buy as what to buy right now, especially in this kind of volatile market. Thank you both for the time today. If you are interested in learning more from Joel and Rob, they are on every month. And make sure to check out the last interview we had. They had another really great conversation on stocks to buy and stocks to avoid. You can watch that full interview