ExxonMobil Fires Up Record Quarter

Gheit is convinced that current energy prices will prove unsustainable. He points out that past spikes have always been followed by "very violent" corrections. And he suspects that future developments -- including a possible slowdown in economic growth and stronger efforts to conserve -- will eventually reverse oil's long climb.

"I don't know what's going to happen to break the cycle," he confessed. "But something has to break it ... [although] it could take a year or two."

In the meantime, Gheit is recommending stocks like ExxonMobil. He says the supermajors have actually underperformed the producers that are more directly impacted by current energy prices. But he predicts a future "slide to quality" as investors switch out their holdings, favoring the supermajors instead, in a more stable pricing environment.

Prudential analyst Michael Mayer is still waiting for a better buying opportunity, however. He points out that oil majors have always gotten cheaper following a sharp correction in energy prices. And like Gheit, Mayer believes that the correction will probably come.

"There have been 31 occasions over the past 15 years when oil prices declined 15% or more," said Mayer, who has a neutral rating on the sector. "Barring a material supply disruption -- which is certainly foreseeable but beyond our ability to forecast -- we believe oil prices could drop by about 30% over the next year. ... [Then] we would expect the major oils to moderately underperform the market and give investors a better relative buying opportunity."

In the meantime, oil services companies continue to capitalize on the current environment. Baker Hughes (BHI Quote) posted a 43% jump in second-quarter profits, which totaled $117 million, or 35 cents a share, and beat the consensus estimate by four pennies. The company also topped revenue expectations by increasing second-quarter sales 15% to $1.5 billion.

Looking forward, Baker Hughes promised even more growth to come.

"Our outlook for the balance of the year is positive," said CEO Michael Wiley. "Expected strong activity in the North American land market and growth in international markets should continue to improve capacity utilization, resulting in margin growth. Our optimism regarding activity levels and the potential pricing and margin improvements are reflected in our increased guidance for the year."

Baker Hughes now expects to deliver full-year profits of between $1.39 and $1.45 a share instead of the $1.35 Wall Street was anticipating. The company also issued new third-quarter guidance of 36 cents to 39 cents a share that tops the current 35-cent consensus estimate.

The company's stock was nevertheless unchanged at $39.54 immediately after Thursday's upbeat report.