NEW YORK ( TheStreet) -- I want to start this article off with a bit of a disclaimer. Although the title states "oil and gas," this is one sector where the lines often blur. There's no clear line between equipment and service companies like Halliburton ( HAL) and Weatherford International ( WFT), and those that deal in exploration and production (E&P) like Anadarko Petroleum ( APC). And let's not forget the drilling specialists like Transocean ( RIG) and Diamond Offshore ( DO).
Suffice it to say, if you're not yet confused, good. But understand, while each of these oil and gas company types serve a slightly different market, one thing they do have in common is that each of these industries will end 2013 on a high note for the year. This is unlike, say, the coal industry.
While it's encouraging to see the increase in customer orders and backlogs, some of these names are still working to overcome weak oil prices and soft rig counts.
I have to wonder how much faith the Street is willing to place in oil and gas in 2014. For example, Cameron International (CAM) recently suffered a 15% stock decline on a downgrade by analysts at UBS, even though Cameron posted a 32% year-over-year increase in orders.
Transocean posted a 5% year-over-year revenue increase in its most recent quarter. Yet its stock has stagnated anyway. Not only did the company beat estimates by $90 million, but Transocean's performance more than doubled that of National Oilwell Varco (NOV), a stock with which the Street seems to have fallen in love.
Essentially, 2013 became a year where the Street was divided on the metrics it chooses to care about it, at least in this sector.
Now I'm not suggesting that there aren't any poorly performing companies in this industry, especially from an operational perspective. But in the case of Cameron and Anadarko, investors made the mistake of believing that certain details like revenue and gross margins are the driving forces of the stocks. To cite these metrics in bearish arguments doesn't make sense.
What's really important to remember is that this entire sector is driven by higher volume of orders.
I believe investors missed out on some growth opportunities with companies like Schlumberger (SLB) and Halliburton, both of which have begun to benefit from better-than-expected growth in North America. These rivals, as well as Baker Hughes (BHI), are showing strong demand in international markets.
For Schlumberger, however, the Street continues to discount the effect of the 60/40 OneSubsea joint venture that the company owns with Cameron International, because the results weren't reflected in the company's consolidated results. But going into next year, OneSubsea should impact revenue growth in a positive way. With shares of Schlumberger trading today at around $85 a share, there's an easy $15 that could be made in 2014.
There were also outperformers like Dril-Quip (DRQ), which, despite 50% year-to-date gains, still seems attractive to me. It's probably the best oil services company you've never heard of. Not only has the company's management raised guidance several times in 2013, but with stronger-than-expected demand coming in from offshore energy development, investors would do well to watch this name in 2014.
On the flip side, with unassuming gains on only 7% on the year, Forum Energy (FET) and companies like it were relative underperformers. And I believe management, which has aggressive plans to become a "total solutions provider," has plenty to prove in 2014. The debt situation is not attractive, though. But they have a 22% growth rate. Forum is also building a strong presence in international markets. This company makes it on my "redemption list" for 2014 -- albeit as a risky bet.
There's really no right or wrong way to play the energy recovery, especially in a highly commoditized industry. But my strategy is to offset every Dril-Quip or Forum Energy purchase with a buy of Schlumberger or Cameron.
Street expectations will always be too high or too low. What's really important for investors, I believe, is to know what you're buying and the associated risk. It also helps to trust that management can reallocate capital in a way that returns value to your shares.
At the time of publication, the author held no position in any of the stocks mentioned.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.