Crude is produced and traded all over the globe, so naturally we see constant references to “the oil industry” as if it were a single, homogenous blob.

In fact, the geology and economics of oil production vary widely depending on the region. The different business models of many overseas producers have dictated a very different response to the slump than what we’ve seen in the U.S. shale basins.

Publicly traded U.S. drillers were heavily outspending their cash flow even when crude was trading in the triple digits. Faced with the more rapid decline curves and far more dependent on the skittish equity and credit markets for capital, they quickly retrenched. By late 2015, U.S. oil output was in rapid decline.

In contrast, the overseas producers were slow to react; in fact many tried to offset the early price declines by boosting output. Capital spending wasn’t slashed as deeply as in the U.S. until very recently, when low oil prices and big national budget deficits finally drained the deep pockets of the state-owned producers.

As a result, overseas output is now slowing in the wake of OPEC quota cuts. U.S. drillers meanwhile, are ramping up spending once again at the behest of equity and credit markets showing optimism verging on complacency.

All Hail Shale

“As the up-cycle begins, growth in E&P investments will be led by the North America land operators who appear to remain unconstrained by years of negative free cash flow, as external funding seems more readily available and the pursuit of shorter-term equity value takes precedence over a full cycle return,” was how Schlumberger’s (NYSE: SLB) CEO put it  two weeks ago.

The leading global oil services provider expects U.S. land drillers to increase their spending 30% this year in the aggregate. Because Schlumberger’s overseas clients have to live within cash flow, “we expect the 2017 recovery in the international markets to start off more slowly,” the CEO said.

The contrast has been even more glaring for leading U.S. drilling rig contractor Helmerich & Payne (NYSE: HP). “I think everyone has been pleasantly surprised with how quickly things have moved and so it’s been kind of hard to keep up with it quite frankly,” the CEO said on the earnings conference call last week. H&P had 127 rigs contracted at year end, up from 95 three months earlier.

As for international operations, “we really don’t have any positive outlook,” the CEO said. “…While we hit the bottom in U.S. land last summer, it may be this summer before we completely hit bottom in international.”

Shale-focused oil service stocks look much more attractive here than those of the drillers. They aren’t as expensive and haven’t run nearly as much so far. In addition, rising capital spending will be money in their bank, while their customers will need oil prices to hold up and costs to stay down before they deposit much of anything in theirs.

Unfortunately, there are not a lot of great ways to get diversified exposure to the current shale revival. The portfolios of exchange-traded funds like Van Eck Vectors Oil Services (NYSE: OIH) and the iShares U.S. Oil Equipment & Services (NYSE: IEZ) are dominated by Schlumberger and global rival Halliburton (NYSE: HAL), which together account for 36% of OIH and 31% of IEZ. Schlumberger recently derived 75% of its revenue outside of North America, and the ETFs include other large global suppliers with international exposure. That means investors buying for the promise of U.S. shale are also investing in Mideast gas production and offshore drilling willy-nilly.

We recommend Schlumberger and recently upgraded it to Buy, but not as a play specifically on the North American recovery.

Follow the Leader

For that, we’d rather assemble our own basket of stocks leveraged to fast-growing domestic shale spending. It starts with Helmerich & Payne, which derived 72% of recent revenue from U.S. land rigs.

H&P is the market leader in that space with 18% of contracted U.S. land rigs and more than half of the most efficient and advanced type that will be most in demand as drillers race to execute ambitious plans on the still relatively tight budgets. Despite dramatic revenue declines over the last two years, the company continued to live largely within cash flow while making sure that its rigs, many recently upgraded, would be ready to roll again quickly when the time came.

Sixty percent of H&P’s rig fleet remains idle, but utilization is expected to improve significantly in the coming months along with day rates. The balance sheet is clean with more cash than debt, even though the dividend was never reduced during the slump and still yields 3.9%.

The stock rallied 34% from mid-November through mid-December but has since given back more than half of those gains amid downgrades by several analysts unimpressed with the valuation. We think they’re underestimating how well H&P will do in a robust recovery, and like the limited downside risk in the current environment.

HP is rejoining the Growth Portfolio; buy below $80.

Our other shale oil service picks are much more speculative, which is why we are advising a basket approach that at least mitigates some of the risk specific to a particular operation.

The companies specializing in the hydraulic fracturing and wireline well services essential to shale oil production are only just emerging from an epic two-year slump that’s bankrupted some of them and laid low the rest. Their equities are liable to be even more sensitive to the price of crude than those of their drilling customers. But they also offer great upside in the event oil gets back above $60 per barrel in a year or two, as we expect, and perhaps much higher a bit later, as many analysts with solid track records are predicting.

A Double-Barrel Frack Attack

It’s not because they’re any sort of a value proposition. The healthiest of the lot is probably RPC (NYSE: RES), which had $132 million in cash and no debt at year end, but also modestly negative operating cash flow amid a 42% revenue decline last year. Revenue has declined 69% since peaking in 2014, yet the share price is now just 13% below the record high set that year, underpinning a daunting $4.6 billion of market cap. Even based on 2015 EBITDA that’s an enterprise value multiple approaching 40.

The good news is that a recovery is clearly underway, with fourth-quarter revenue up 25% sequentially, pricing ticking up from lows and more of that in store this year. But nearly half of RPC’s equipment remains idle and, as a company executive put in on last week’s call, “the economics of this business are still not self-sustaining.

Insiders control 74% of the outstanding stock while the float is at 30% of the outstanding, and more than half of that is sold short. And that mean last year’s pain trade for the shorts as the share price rose 66% could continue well past the 2014 peak this year.

If you’re a value investor looking for Benjamin Graham’s famous margin of safety, stay far away. RPC’s share price will be dictated by the price of oil, trends in domestic shale production and investor interest. If these play out as we expect, this should end up a very good trade. We’re adding RES to the Aggressive Portfolio; buy below $23.

RPC rival Superior Energy Services (NYSE: SPN) managed to deliver positive operating cash flow even during the first nine months of 2016, though it did see a 75% drop from the prior year. It too had plenty of cash to ramp up hiring and maintenance as demand turned last year, with $278 million on hand as of September. And while Superior is also carrying $1.3 billion in debt, its enterprise value of $3.7 billion is only about 6 times its 2015 operating cash flow, which I’m using as (a likely optimistic) proxy for what it might be able to do in 2017. SPN is going into the Aggressive Portfolio with a buy limit of $21.