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Friday, August 14, 2020  Spokane, Washington  Est. May 19, 1883
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Motley Fool: Oily technology

Core Laboratories uses proprietary technology to analyze oil and gas wells to help producers maximize every dollar spent developing those resources.  (Courtesy Core Laboratories)
Core Laboratories uses proprietary technology to analyze oil and gas wells to help producers maximize every dollar spent developing those resources. (Courtesy Core Laboratories)

The COVID-19 pandemic has hit the oil industry hard. It’s going to take a long time for oil to recover, and some think it may never fully bounce back. Yet investors can still profit. Oil and natural gas remain the fuels that power much of global transportation, feeding manufacturing and electricity delivery. Renewables are becoming more important and will eventually displace hydrocarbons, but that’s likely to take decades. In the meantime, consider Core Laboratories (NYSE:CLB).

Core Laboratories is a major oilfield services provider, but it’s not the typical pick-and-shovel contractor with expensive equipment to maintain even when nobody’s hiring.

It uses proprietary technology to analyze oil and gas wells to help producers maximize every dollar they spend developing those resources. That business model can help it ride out even this brutal downturn, and the services it provides are critically important to producers when they start drilling again.

With shares having fallen more than 80% over the past three years, Core Laboratories seems undervalued. It aims to pay out a large portion of its free cash in dividends during healthy parts of the market cycle. That dividend was recently dropped to a penny per quarter, but when business picks up, investors can likely count on a nice dividend stream from the company. (The Motley Fool has recommended Core Laboratories.)

Ask the Fool

Q: I recently read that shares of Cisco Systems have still not recovered from their drop when the dot-com bubble burst in 2000. Is that true? And if it is, how can I avoid investing in a company like that? – P.T., Paramus, New Jersey

A: First off, understand that Cisco Systems isn’t necessarily a bad company or bad investment. The problem was the bubble – people continued to buy shares of increasingly overpriced stocks, sending their prices up further, until the bubble burst. While many of those companies flamed out, others were solid and kept growing.

It is true that, 20 years later, Cisco’s market value remains lower than it was before the bubble burst. That’s true of other solid companies, too, such as Intel. It took Microsoft and Oracle much more than a decade to surpass their precrash highs.

To avoid ending up with a loss that won’t be overcome for 20 years, pay attention to valuation when you buy a stock. You should buy high-quality companies, but not at any price. Aim to buy stocks that seem undervalued – perhaps with their price-to-earnings (P/E) ratios significantly lower than their five-year average P/Es, or with price-to-sales ratios significantly lower than those of their peers. You can also ask yourself whether their market value seems reasonable.

Q: What are capital gains? – L.D., Eugene

A: If you own and sell an asset such as a stock, the increase in value over the purchase price is your capital gain. If you sell for a loss, you have a capital loss. Your gain or loss on an investment before you sell it is an “unrealized,” or “paper,” gain or loss.

My dumbest investment

My dumbest investment was listening to the son of a hedge fund manager, who offered a stock tip. That position is currently down 70%. Luckily, it’s a small position. – D.F., online

The Fool responds: It’s natural to be interested in finding extremely promising investments and to keep our ears open for good ideas. But don’t act on any stock tip without doing your own research first. Remember that in most cases, you won’t know the track record of the person recommending a stock; it could be that only 40% of his recommendations have worked out well. (That might be fine for him, if they perform so well that they more than make up for the other 60% of losses.)

Hedge fund managers may seem like good people to get investment ideas from, but many hedge funds don’t perform all that well, despite often charging shareholders steep fees. At the end of 2017, super-investor Warren Buffett famously won a 10-year bet against a hedge fund manager: that the S&P 500 would outperform the manager’s handpicked group of hedge funds.

For best results, do your own digging into companies of interest, checking out how healthy they are (in terms of cash versus debt), how quickly they’re growing, what their sustainable competitive advantages are, what risks they face and how attractively they’re priced. Diversify your holdings, too, by putting your eggs into multiple baskets.

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