Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **Global Oil Services** industry, particularly in the **Middle East** market, which is valued at approximately **$111 billion** [12][15]. - The industry is experiencing a potential resurgence reminiscent of the **1970s super-cycle**, driven by geopolitical factors and rising oil prices [4][10]. Core Insights and Arguments - The metaphor of the "wolf" represents the use of oil as a political weapon, with historical context provided from the **1973 oil crisis** [2]. - Oil prices have historically surged during conflicts, with prices increasing from **$2.50-3.50/bbl** (1948-73) to **$11.16/bbl** in 1974-75, and reaching **$37/bbl** by 1981 [3]. - **SLB (Schlumberger)** serves as a proxy for the oil services sector, showing significant growth during the last super-cycle, with revenues increasing **6x**, net income **14x**, and market cap **20x** from 1973 to 1980 [3]. - Current conditions suggest a new super-cycle may emerge due to: - An optimistic outlook for oil services prior to recent geopolitical tensions. - **90%** of current exploration and production (E&P) capital expenditures focused on maintaining production rather than growth. - A need for exploration after a **12-year decline** in activity. - New offshore basins with low breakeven prices [4]. Short-Term and Long-Term Outlook - In the short term, companies with low exposure to the Middle East and high exposure to North America, such as **Tenaris**, **Vallourec**, **Viridien**, and **SLB**, are expected to benefit [5][10]. - Potential downgrades in guidance from companies like **Technip Energies** could present buying opportunities, similar to past occurrences with SLB [5]. - The entire sector is expected to benefit from increased energy investments in North America, offshore, and gas in the medium term, with visibility extending to the mid-2030s [10]. Market Dynamics - The oil services sector has begun to re-correlate with oil prices after a period of de-correlation since 2022, indicating a medium-term positive outlook despite potential volatility [6]. - The market share analysis indicates that **US companies** hold a **32%** share of the Middle East oil services market, although this has been declining [17]. - The **Oil Field Services (OFS)** segment remains dominated by US companies, which hold a **67%** market share, with **SLB** leading at **29%** [19]. Segment Analysis - The **$30 billion OFS segment** shows strong US dominance, while the **$65 billion Engineering & Construction (E&C) segment** is characterized by fierce competition, particularly from Asian and European firms [22][25]. - The **$11 billion drilling segment** is described as a "regional sport," with local players increasingly taking over from international firms [27]. Important Metrics and Projections - The overall oil services market is projected to grow by **3%** in 2025, driven primarily by the E&C segment, which is expected to grow by **5%** [15]. - The report includes detailed market share projections for various companies within the OFS and E&C segments, highlighting competitive dynamics and growth opportunities [21][24]. Conclusion - The current geopolitical landscape and historical precedents suggest a favorable environment for the oil services sector, with potential for significant growth and investment opportunities in the coming years [10][12].

Core Viewpoint - Energy stocks, particularly those in the oil services sector, are thriving despite broader market pressures, driven by higher oil prices and increased drilling activity [1][2][11]. Group 1: Market Performance - The VanEck Oil Services ETF has reached new 52-week highs, showcasing strength against a backdrop of geopolitical tensions and economic concerns [2][12]. - The ETF tracks the 25 largest U.S.-listed oil services companies, with the top 10 holdings comprising over 70% of the fund, leading to significant movements in the ETF when these companies perform well [4][12]. Group 2: Key Companies - Weatherford (WFRD) has shown strong performance, with analysts projecting 2026 revenue between $4.6 billion and $5.0 billion, supported by margin expansion and a Zacks Rank 1 (Strong Buy) [6][7]. - TechnipFMC (FTI) has also performed impressively, recently hitting 52-week highs, with projected earnings growth of approximately 18% in 2026, benefiting from a resurgence in offshore spending [8][10]. Group 3: Industry Dynamics - Higher oil prices provide a tailwind for oil services companies, increasing demand for drilling and completion activities, which can lead to growth even in a subdued equity market [3][11]. - Oil services companies are seen as a relative safe haven in bearish market conditions, as their revenues are more closely tied to commodity prices rather than overall economic growth [11][12].

Market Overview - The market has distanced itself from the 200-day moving average and the 6,500 level, indicating a bearish trend [1] - A significant drop of 7% in gains has occurred over the last few weeks, leading to investor frustration [4] Technical Analysis - The recent low was around 6,473, and if the market cannot close above this level, a focus on 6,200 is warranted, which aligns with the August low and Fibonacci levels [2][3][4] - Currently, less than 50% of the S&P 500 is above the 200-day moving average, indicating a deterioration in market breadth [8] Sector Performance - Financials, discretionary, communication services, and tech sectors are underperforming, while utilities and energy sectors continue to show strength [7] Investor Behavior - There has been a notable outflow from equity funds, with the largest outflow in 13 weeks amounting to $23.6 billion, and materials experiencing the biggest outflow ever [14] - Despite the outflows from equities, there is a shift towards diversified ETF buying, indicating a search for safer investment options [6][19] Economic Indicators - The University of Michigan consumer sentiment numbers showed a decline, with one-year inflation expectations rising, reflecting ongoing economic uncertainty [12][13] - Bond yields are increasing, and central banks are selling gold, which is affecting the fixed income market negatively [17] Market Drivers - Oil prices are a significant driver of the market, with WTI showing no signs of slowing down amid geopolitical tensions in the Middle East [11][16] - The market is currently facing challenges due to uncertainty around oil and inflation, impacting higher beta stocks [16]

Market Overview - The current market environment is characterized by increased caution, particularly regarding riskier equity positions, with a focus on reducing risk and raising cash [5][6] - A five-step investment strategy has been outlined, emphasizing risk reduction, cash accumulation, sector rotation, and hedging strategies [6][13] Gold Sector - The gold market is viewed as having potential for significant upside, with expectations that gold prices could rise substantially, potentially reaching $5,000 [15] - Recent declines in gold and silver stocks have created buying opportunities, particularly in companies like Barrick Mining, Newmont Mining, and Angico Eagle Mines [19][20] - The current market dynamics are influenced by changing interest rate expectations, with a shift from anticipated rate cuts to potential rate hikes, which negatively impacts gold prices [25][28] Energy Sector - The energy sector has been identified as undervalued, with companies like Devon Energy and APA showing low price-to-earnings ratios, indicating potential for growth [38] - Oil prices are expected to rise due to geopolitical tensions, which could lead to increased inflation and impact market liquidity [26][27] - Key players in the oil services segment, such as Schlumberger and Halliburton, are positioned to benefit from future market developments, particularly in rebuilding efforts in the Middle East [40][41] Technology Sector - The technology sector is currently facing challenges, with a need for selectivity in investment choices due to market corrections and valuation concerns [52][54] - Companies like Palantir, AMD, and Tesla remain core positions, with ongoing strategies to hedge against potential downturns [66][70] - The overall sentiment in the tech market is cautious, with expectations of continued volatility and the need for patience in identifying buying opportunities [55][64]

Group 1 - The Value Lab focuses on long-only value investment ideas, targeting a portfolio yield of about 4% and has performed well over the last 5 years by engaging in international markets [1] - Smart Sand (SND) is trading at a slight discount compared to oil services peers and is reasonably positioned for the current oil crisis, although there are cost risks associated with electricity and natural gas prices [2] - The Valkyrie Trading Society consists of analysts sharing high conviction investment ideas that are downside limited and likely to generate non-correlated and outsized returns in the current economic environment [2]

Group 1: Oil Market Overview - Oil prices have increased by approximately 50% since the U.S.-Israeli attack on Iran began in late February, reaching Brent crude highs not seen since 2022 [1] - The S&P Global Oil Index has risen by 8.7% in the last month and 31% year-to-date, significantly outperforming the S&P 500's -3.6% return during the same period [2] - The disruption in the Straits of Hormuz, where Iran typically ships 9 to 10 million barrels of oil per day, is contributing to current market volatility [3][4] Group 2: Schlumberger (SLB) Company Analysis - Schlumberger is currently trading at around $48 per share, with a 7% increase over the past week, making it a favored stock among analysts in the oil services sector [4] - The company reported total revenue of $35.7 billion, with a three-year revenue growth rate of 8.3% and operating margins of 15.28% [5] - Schlumberger has a debt-to-equity ratio of 0.45, indicating effective cost management, and plans to return $4 billion to investors this year, supported by a 3.5% quarterly dividend increase [5] Group 3: Analyst Sentiment and Price Targets - All 14 energy industry analysts have issued a Buy call on Schlumberger, reflecting strong confidence in the company's performance amid market volatility [7] - Stifel Nicolaus and Citi both set a price target of $56 for SLB shares, indicating a potential upside of 17% [7]

Core Insights - The current market is undergoing a regime change, moving from a disinflationary environment to an inflationary one, which will impact asset prices and investment strategies [14][19][24] - Investors are advised to shift their focus from traditional equities, particularly the S&P 500, to commodities like gold and energy stocks, as bonds are seen as inadequate for inflation protection [24][25][89] Investment Strategies - The recommendation is to sell bonds and invest in gold and oil, as these assets are expected to perform better in the current inflationary environment [25][89] - The equal-weighted S&P (RSP) is suggested over the traditional S&P 500 to avoid the heavy tech exposure that has characterized recent market performance [24][89] Market Analysis - The market is experiencing significant dispersion and rotation, indicating that stock picking will be crucial for outperforming the market [22][26] - The tech sector, particularly the MAG-7 stocks, is viewed as overvalued and likely to face challenges due to changing business models and economic conditions [40][50][56] Commodities and Energy - Gold is highlighted as a hedge against poor central bank decisions and is expected to rise significantly, with projections suggesting it could reach $7,000 to $10,000 in the coming years [85][86] - Energy stocks are considered undervalued due to years of underinvestment, and the depletion of oil resources is expected to drive prices higher [86][88] Private Credit Concerns - Private credit is described as a potential source of risk in the market, with concerns about its lack of price discovery and the potential for significant losses as liquidity tightens [92][95][98] - The situation with private credit is compared to past financial crises, indicating that it could lead to broader market issues if not managed properly [95][98]

Market Overview - The current market is experiencing significant volatility, likened to a roller coaster ride, with concerns over higher oil prices and stagflation impacting investor sentiment [2][4] - The VIX is trading around 26%, indicating strong demand for hedging in the broader markets, particularly the S&P 500 [3] S&P 500 Analysis - The S&P 500 has broken below the 6,800 support level, with the next support around 6,550, suggesting potential downside risks for investors [5] - Investors are advised to consider protective strategies, as the conflict in the Middle East may lead to prolonged market disruptions [5][12] Options Trading Strategy - A recommended strategy involves using a put spread, specifically buying at-the-money puts around the 675 level and selling 645 puts, which could cost approximately $7.65, representing a risk of just over 1% of portfolio value [9][10] - This strategy offers a nearly 3:1 risk-to-reward ratio, with potential downside protection limited to the 645 level [9][10] Energy Sector Focus - SLB (Schlumberger) is highlighted as an attractive investment in the oil services sector, benefiting from the ongoing geopolitical tensions and the need for alternative oil sources [12][13] - Despite recent market volatility causing a 5% decline in SLB's stock, this presents a buying opportunity, especially with the potential re-entry into Venezuela for offshore drilling [14][16] Investment Metrics - Selling a $45 put option on SLB could yield over $2 in premium, equating to nearly 5% of the stock's value in one month, providing an attractive income opportunity [17][18] - SLB is trading at around 15 times forward earnings, which is below the industry average of 18-19 times, making it a potentially undervalued investment [19][20]

Fund Performance - Ariel Fund delivered a +3.22% return in Q4 2025, in line with Russell 2500 Value Index (+3.15%) and Russell 2000 Value Index (+3.26%) [1] - For the trailing one-year period, the Fund advanced 14.15%, outperforming Russell 2500 Value Index (+12.73%) and Russell 2000 Value Index (+12.59%) [1] - The Fund's 5- and 10-year average annual returns were +9.36% and +9.51%, respectively [1] Market Conditions - Performance attributed to resilient corporate earnings, easing inflation, and rising expectations for accommodative monetary policy [1] - Continued enthusiasm around artificial intelligence and cloud infrastructure supported markets, although gains were concentrated in a narrow group of large-cap stocks [1] Outlook and Strategy - The firm maintains a measured and cautious outlook for 2026, citing geopolitical risks, fiscal constraints, labor market dynamics, and elevated market concentration as potential volatility sources [1] - Management reaffirmed a long-term, bottom-up approach, emphasizing strong balance sheets, durable fundamentals, and valuation discipline [1] Company Highlight: Core Laboratories Inc. - Core Laboratories Inc. (NYSE:CLB) reported sequential revenue growth driven by strong global demand for its services and products [3] - The company improved operating income, margins, and EPS, while enhancing its international presence through the acquisition of Brazil-based Solintec [3] - Core Laboratories reduced leverage to a nine-year low and returned capital to shareholders through dividends and buybacks, positioning itself for long-term growth [3] - The stock had a one-month return of -15.49%, trading between $9.72 and $20.36 over the last 52 weeks, closing at approximately $16.11 on March 5, 2026, with a market capitalization of about $735.76 million [2][3]

Core Viewpoint - The VanEck Oil Services ETF (OIH) has shown significant growth, rising 39% year-to-date and 15% in the past month, driven by a recovery in crude prices and strong earnings from key holdings [1] Group 1: Market Performance - OIH is up approximately 39% year-to-date through February 27, with over 15% of that gain occurring in the last month [1] - WTI crude prices have recovered 19% from a January low of $56 to around $66, influencing upstream capital spending and oil services revenue [1] Group 2: Company Insights - Schlumberger (SLB) projects 2026 revenue between $36.9 billion and $37.7 billion, contingent on oil prices remaining stable [1] - Baker Hughes (BKR) has a backlog of $32.4 billion, focusing on LNG infrastructure and AI data center power demand, which are less dependent on rig counts [1] - Halliburton (HAL) anticipates a decline in North America revenue by high single digits in 2026, making it the most sensitive to U.S. drilling budgets [1] Group 3: Investment Considerations - The EIA Weekly Petroleum Status Report is a key indicator for crude price direction, impacting oil services companies' revenue [1] - Transocean (RIG), with a beta of 1.46, is highly sensitive to crude price fluctuations and is involved in discussions regarding a potential merger with Valaris [1] - Changes in the fund's holdings, such as an increase in BKR's weighting and a decrease in HAL's, could shift the fund's sensitivity from North American rig counts to long-cycle infrastructure spending [1]