Energy Sector Bottoming Signal: 3 Stocks Down 35%+ Now Worth Your Attention in 2026

The energy sector’s brutal 2025 performance has created a rare window for value hunters. While oversupply concerns and geopolitical premium erosion hammered oil prices below $60/barrel, several high-quality operators got caught in indiscriminate selling. For investors willing to position ahead of the inevitable recovery cycle, three deeply discounted names—Drilling Tools International (DTI), KLX Energy Services Holdings (KLXE), and W&T Offshore (WTI)—offer compelling entry points despite their steep drawdowns from 2025 peaks.

Why Energy Got Crushed (And Why It Matters)

The numbers tell a sobering story. While the S&P 500 delivered roughly 20% gains in 2025, oil and energy equities limped along with modest returns. Crude down 20% year-to-date, trading near $60/barrel, reflects persistent oversupply pressures. Yet here’s the critical insight: not all energy stock declines were rooted in business deterioration. Instead, a brutal macro backdrop triggered sector-wide capitulation that swept up both challenged and fundamentally sound operators alike.

This dynamic—massive price compression disconnected from underlying operational quality—historically precedes sharp reversals. When sentiment overwhelms fundamentals, patient investors often find asymmetric risk/reward setups.

The Downhole Tools Market Opportunity

The oilfield services complex, particularly downhole tools market segments, remains underpinned by essential drilling infrastructure demand. Equipment providers with installed bases, proprietary technologies, and geographic diversification should structurally benefit as activity normalizes. Companies trading 35%+ below early-2025 levels present opportunities for those believing in cyclical recovery.

Three Stocks Crushed Below Valuation Support

Drilling Tools International: The Downhole Tools Powerhouse

DTI operates Houston-based operations delivering downhole tools, machining, and inspection solutions for horizontal and directional drilling applications. The company manages a 65,000+ tool fleet and proprietary systems including Drill-N-Ream and RotoSteer technology. Its infrastructure spans 16 domestic and 11 international facilities across the Middle East, Europe, and Asia, with 90%+ of 2024 revenues from the Western Hemisphere.

Since 1984 founding, DTI has built a portfolio from 2 to 16 patented products through disciplined M&A and R&D investment. The company currently participates in roughly 60% of North American drilling rigs, positioning it for cyclical upside as activity recovers.

Operationally, DTI’s strengthened balance sheet, expanded credit facilities, and resilient free-cash-flow generation provide cushion through fluctuating cycles. The Zacks Rank #1 (Strong Buy) designation reflects confidence in execution. Current consensus earnings estimates for 2026 imply 650% growth potential. Notably, DTI shares trade roughly 38% below their early-2025 peak—a significant discount suggesting capitulation pricing.

KLX Energy Services: Integrated Onshore Positioning

KLXE serves onshore producers across major U.S. shale basins with drilling, completion, production and intervention services. Its service suite includes coiled tubing, wireline, flowback operations, pressure control, and directional drilling capabilities. The company operates through nationwide service centers focusing on technically complex wells.

Differentiation stems from proprietary tooling, in-house manufacturing, and deep operational expertise. Long-standing producer relationships provide demand stability, while vertical integration improves efficiency. Despite recent activity softening, KLXE holds Zacks Rank #2 (Buy) status, reflecting resilience expectations.

The 2026 earnings consensus forecast 14.5% growth even amid near-term headwinds. Perhaps most striking: KLXE shares currently trade nearly 80% below their January 2025 highs—an extreme valuation dislocation suggesting maximum pessimism.

W&T Offshore: Gulf Producer With Deep Reserves

WTI operates independent production across 50 Gulf of America offshore fields, controlling 600,000+ gross acres. The company holds 248 million barrels oil-equivalent reserves and produced 35.6 thousand barrels oil-equivalent daily in Q3 2025. Operations benefit from low-decline reservoirs, strong well productivity, and over 28 consecutive quarters of positive cash generation.

Founded in 1983 and public since 2005, WTI has deployed ~$2.7 billion in Gulf acquisitions with ~90% drilling success rates. Management demonstrates disciplined capital allocation focusing on cost reduction, reserve life extension, and organic/acquired growth opportunities. The company beat earnings estimates in three of the last four quarters (average beat: 27.1%), signaling execution consistency.

WTI ranks #2 (Buy) with shares trading 35%+ below their October 2025 peak—another signal that market pessimism may have overshot fundamental reality.

The Thesis: Cyclical Timing Meets Valuation Compression

Energy investors face a classic setup: macro pessimism has crushed both weak and strong operators, creating rare pricing dislocation. Stocks down 35-80% from recent highs—trading well below historical valuation bands—suggest capitulation pricing. For those believing oil/energy normalize in 2026, the risk/reward now favors patient accumulation.

The downhole tools market, oilfield services complexity, and producer cash generation models remain structurally sound. Only sentiment has shifted. History suggests such extremes precede sharp reversals.