Decent Gas Prices Won’t Limit the Upside of Drilling Plays

The price of gasoline has certainly been more agreeable lately. Still, I’ve been thinking a lot about the energy sector from an investment point of view of late. I told you several months ago that my dentist bought shares in a large, integrated oil and gas company as a way to beat high gas prices. His investment has paid off, but I’m wondering how much more upside there is in the big energy stocks. The thing is, they’ve already gone way up!

I think that oil and gas drilling will be a market sector that outperforms the big energy producers in 2006. Large energy companies are spending big bucks on new drilling, and I think this is a sector where investors can still make some money from the current energy price cycle.

One company that seems to be doing very well in this sector is Pioneer Drilling Co. (AMEX/PDC). In its latest quarter, the company reported a 57% increase in revenues and net income that grew to a whopping $11.1 million, up from only $923,000 in the comparable quarter. Needless to say, the company is chomping at the bit to keep up with demand.

Don’t get me wrong, if you own a big company like Exxon Mobil, it is likely to keep giving you solid returns going forward. If you’re a speculator, however, the oil and gas service industry, including drilling, is the place to be over the near term.