During Donald Trump’s presidential campaign, he told Republican convention goers that during his administration, the energy sector would benefit from policies that encourage oil companies to produce more, lowering gas prices. “Drill, baby, drill!” he said.

While a Trump presidency will undoubtedly be more favorable to energy stocks, such as reopening federal lands for drilling that were closed off by the previous administration, it is not certain how much more production will actually be achieved. 

Across the board trade tariffs, for example, could hurt foreign economies, lowering energy demand, and China’s economy is already weakening, undermining OPEC’s efforts to keep oil prices higher. West Texas Intermediate (WTI) crude has fallen from $72 a barrel on Election Day to $68 a barrel today, a 5% drop. Brent crude is down 4% to $72 a barrel. 

Oil giants like Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) are not likely to dramatically increase production, but instead narrowly focus as they have been on their existing profitable projects and returning value to shareholders.

That means investors need to be more selective with their investments in the sector. The following two stocks are ones that will likely benefit most from a Trump presidency.

24/7 Wall St. Insights:

• Donald Trump’s election win should benefit the fossil fuel segment of the energy sector as producers will be encouraged to drill for more oil and gas.
• While the industry majors may not take advantage of the opportunities, preferring instead to focus on returning value to shareholders, other energy stocks should enjoy significant growth.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

EQT (EQT)

EQT (NYSE:EQT) is the country’s largest independent natural gas supplier focusing on production in the Marcellus Shale field of the Appalachian Basin. 

Because of its size, it enjoys economies of scale that lower its costs, while its recently completed acquisition of Equitrans Midstream, a midstream operator it previously spun off, saves it money it otherwise would have had to pay the pipeline company.

A Trump presidency will encourage greater investments in pipeline infrastructure, which has often been an industry bottleneck. Additional pipelines offers the potential for greater oil output, if not by the majors than for smaller players.

Trump will likely also do away with President Biden’s ban on liquid natural gas (LNG) exports. Immediately after the election, the European Commission’s president Ursula von der Leyen said Europe could stop buying natural gas from Russia and import it from the U.S. instead. EQT could be a beneficiary of the new policy as the Equitrans purchase gives it more exposure to Gulf of Mexico export markets.

The stock market certainly sees significant upside potential in EQT stock, with shares running 16% higher since Trump’s win. Trading at just 14 times next year’s earnings estimates, even though it is at a 52-week high and within sight of its all-time high, is still a stock that can see significant gains over the next four years.

Baker Hughes (BKR)

In that same vein is Baker Hughes (NASDAQ:BKR), an oil and gas industry services provider. Any policy changes that will encourage greater production in the field will benefit one of the leading service providers. Particularly if Trump opens more oil and gas leases in the Gulf of Mexico, Baker Hughes will enjoy having more projects to work on.

The oil and gas services company focuses on gas technology, automation, and LNG to meet global natural gas demand. The attention it has given to technology solutions has allowed Baker Hughes to reduce customer lead times and lowered its own manufacturing costs.

With $6.7 billion in strong order flow, the services provider will  drive further improvements in its profit margins that have already been expanding. It also has an ongoing plan to transition toward greater industrial asset management, that should allow it to win very long-term contracts that will offer more opportunities for providing aftermarket services.

Baker Hughes is also trying to reduce its reliance upon exploration and production services that account for around 60% of its revenue currently. It would like to see that drop to 40%. 

An improved marketplace for oil and gas should make that transition easier, giving it better opportunities to choose where to invest. 

BKR stock is up 28% year-to-date, but with earnings expected to grow 38% annually for the next five years, it is trading at a significant discount to those estimates. That makes Baker Hughes a top energy stock to buy with Trump as president.

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