Last week, with reference to solar power, I outlined the basic reasons to invest in those that supply an industry rather than specific individual companies. The logic is obvious. Investing in suppliers allows you to participate in the upside of a booming industry without company specific execution risks. If you sell the tools needed to prospect or explore, then who, if anybody, hits pay dirt is irrelevant.
Of course, the theory can be applied to traditional as well as alternative or emerging industries. Traditionally energy is not derived from the sun, but drilled for. Superior Drilling Products Inc. (SDPI) is in the business of supplying those that drill.
That isn’t the entire story, however. They started as a company that repaired Polycrystalline Diamond Compact (PDC) drill bits, the business end of oil and other mining drills. They have moved into the manufacture and supply of drilling equipment and, on Wednesday, were granted a patent for their “Drill-n-Ream” tool. Details of what that is can be found here, but from an investor’s perspective what you need to know is that the company is likely to see significant growth on the back of it.
SDPI is not a stock for the faint of heart. It only started trading last week after the IPO was priced below the expected range, at $4 compared to a $5-7 forecast. The lack of institutional demand that a low initial price indicates is a red flag to many, and the fact that the stock has jumped around…