To this point, oil service and equipment firms have lagged explorers, but the longer this nascent industry recovery goes, the more demand will develop (especially overseas) for big outfits like Schlumberger (SLB), asserts Mike Cintolo, editor of Cabot Top Ten Trader.

The firm, of course, is one of the granddaddies of the oil service sector, and the industry doldrums had it following the usual script: Costs were slashed and the company reorganized into a few new areas, including its Digital and Integration segment (largest in terms of pretax income), which focuses on helping drillers adopt cloud and automation to increase efficiencies.

There’s also a focus on services and technology that address the climate issue (reduced flaring and methane emissions, etc.). But at day’s end, business (and the stock) will likely be driven by the capital equipment cycle of explorers (well construction and reservoir performance segments), and the news is increasingly bright on that front.

Adjusted for some small divestitures, North American Q1 revenues were up 10% sequentially, free cash flow was positive for the third straight quarter, while international prospects are looking solid (where the vast majority of Schlumberger’s money comes from), with double-digit expected growth in the second half of this year and potential boom times in 2022.

Possibly most important was that the company is now lean and mean; management has stated it believes cash flow will return to 2019 levels even if revenues make up only half of the decline!

Translation: Sales and (especially) earnings are headed way up in the quarters to come as worldwide energy activity picks up. Analysts see earnings up 63% this year and 42% next, while the dividend (1.6% annual yield) puts a nice cherry on top of this early-stage turnaround story.

SLB was at $115 in 2007 and $118 in 2014, but was sitting around $14 at the end of last October, just to give you an idea of how long this stock has been out of favor. But the character of SLB has clearly changed, with a powerful November-through-February rally, a very reasonable seven-week retreat, and now, a pre- and post-earnings move to new recovery highs.

As with many in the group, a little chop wouldn’t shock us — you could nibble here, though we prefer to sharpshoot an entry down a point or two from here.

Subscribe to Cabot Top Ten Trader here…