There comes a time in the economic cycle when investors need to dig deeper into fundamentals and stay true to the market’s nature of reflecting tomorrow’s expectations in today’s prices; some developments are acting as a tailwind behind the energy sector of the United States, tailwinds that may lead more capital to rotate into a few specific stocks with all the right fundamental makeup moving forward.

Knowing that the sector is one of the most sensitive to the overall economic cycle, it makes sense to see that most stocks in the space lack price action compared to other more exciting stories in the stock market. With cooling inflation readings on a year-to-date basis and considerable future uncertainty rooted in the recently implemented trade tariffs by President Trump, new orders in energy have taken a back seat.

Despite the clouds currently surrounding energy and oil stocks, a near-term resolution in tariff negotiations may already be having an impact on how the United States wants to proceed. Restarting production output figures within oil rigs in the Gulf, investors could consider names like Transocean Ltd. (NYSE: RIG), Helmerich & Payne Inc. (NYSE: HP), and even the broader Energy Select Sector SPDR Fund (NYSEARCA: XLE) for a winning portfolio.

New Production: Fast-Track to Profits

The United States is one of the largest oil consumers in the world economy, and that consumption has taken a backseat recently as trade tariffs slow down the pace of business and new orders all around, hence the fall in price indexes for business and some consumer items as well.

However, this is the present, and as most investors know, markets trade based on future expectations (hence their forward-looking nature). The future looks significantly different in many ways, one of which is that negotiations with China have recently begun to move forward ahead of expectations, clearing the way for some trade decisions to be made.

This might explain why up to $1.8 billion worth of institutional capital has gone into the Energy Select Sector SPDR Fund, seeking broader exposure to this new theme and also providing investors with a way to benefit from the trends in a diversified manner.

However, this ETF is heavily exposed to larger companies that operate further down the value chain, ones that profit a quarter or two after oil prices have gone on an uptrend. For smaller retail investors without sizing limitations, smaller companies higher up in the value chain (the ones getting paid first) might be a much better way to strategize.

Enter Transocean Stock

This is a $2.8 billion company that provides drilling equipment and leases to the larger players; therefore, while these giants in production have to manufacture the end product and then get paid once it is offloaded, Transocean is collecting cash flow as soon as the need to drill more oil arises.

Seeing that the output for the Gulf has been projected to stay within 300,000 barrels per day, with a forecasted decline to 250,000 barrels per day in 2026, this is where Transocean becomes an “arbitrage play.” The reason is that the market is pricing Transocean stock lower due to this expected decline, where the actual future might bring a production boost.

If these production declines were accurate considering where the future of the industry is headed, then Transocean wouldn’t have staged a 21.9% rally over the past month alone, and Gregory Lewis from BTIG Research wouldn’t have kept his Buy rating on the stock as of early May 2025 along a price target of $5 per share.

Compared to today’s low prices, this valuation would imply Transocean can deliver an additional 56% rally from where it is today, solidifying the fact that markets are expecting production to actually increase in the coming energy cycle, delivering outsized returns to investors while at it.

The Trend Continues for Helmerich & Payne

Another worthy mention in this smaller corner of the energy industry is Helmerich & Payne, operating under the same business model as Transocean and offering similar setups in terms of upside potential. Being a $1.8 billion company has the benefit of shaking away those who bet on the wrong side of things.

This is evident in the 9.7% decline in short interest for Helmerich & Payne stock over the past month alone, a clear sign of bearish capitulation as investors realize that this small company has significantly more upside potential in terms of percentage gains than downside.

And that is exactly where the Wall Street consensus price target of $27.7 per share comes in to reiterate this fact, which, compared to today’s prices, calls for as much as 53.1% upside potential, another high return profile that aligns with the underlying cycle energy is about to go into, giving investors all the ways to also line up in this coming profit center.

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