Make Money in Oil Services Stocks the Easy Way

Before you go, we thought you'd like these...
Before you go close icon

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the oil services industry to thrive over time as our reliance on oil doesn't disappear anytime soon, the Market Vectors Oil Services ETF (ASE: OIH) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

If you're familiar with ETFs and think that the OIH ticker looks familiar, but the fund's name doesn't, you're right. This ETF is one of several replacing Merrill Lynch-based HOLDRs which had some problems that these funds don't.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Market Vectors ETF's expense ratio -- its annual fee -- is a low 0.35%.

This ETF doesn't have much of a performance record yet, as it's just a few weeks old. It's relatively small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. You might want to just keep an eye on it as it matures a bit, or you might want to be an early investor. Remember that as with most investments, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

What's in it?
Several oil services stocks have done well over the past year. Seadrill (NYS: SDRL) , up 20%, has been dubbed "the best offshore drilling stock" by my colleague Travis Hoium. It's very focused on ultra-deep drilling, has been benefiting from the high price of oil, and sports a tantalizing dividend yield above 8%. National Oilwell Varco (NYS: NOV) , up 9%, has a hefty backlog of orders, and is well-positioned to serve busy shale and deepwater drilling operations.

Other companies didn't do as well last year, but could have an effect in the years to come. McDermott International (NYS: MDR) shed 36%, but it also recently inked a big new contract, its biggest ever, at $2 billion. Pushing its stock down over the past year was a slump in its Middle East operations and some difficulties in shifting into deeper drilling.

Transocean (NYS: RIG) , the world's largest offshore drilling contractor, fell 38% over the year. Some bulls see it as an attractive acquisition target and like its hundreds of millions of dollars in backlog orders, and the fact that it has been raising some of its prices lately. Bears worry about drilling disasters, such as a recent one off the coast of Russia.

The big picture
Demand for oil is likely to be with us for quite a while. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Learn about5 ETFs That Could Soar in 2012. And if you're looking for some great investments beyond ETFs, consider these12 Dividend Stocks for 2012.

At the time this article was published LongtimeFool contributorSelena Maranjianowns shares of Seadrill, but she holds no other position in any company mentioned.Click hereto see her holdings and a short bio.You can follow Selena on Twitter@SelenaMaranjian.The Motley Fool owns shares of Transocean and National Oilwell Varco.Motley Fool newsletter serviceshave recommended buying shares of National Oilwell Varco. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners