Pick-And-Shovel Play

DEFINITION of 'Pick-And-Shovel Play'

A strategy where investments are made in companies that are providers of necessary equipment for an industry, rather than in the industry's end product. A pick-and-shovel play, in practice, could be within the oil industry; an investor would purchase stock in a company that manufactures seismic data equipment that exploration and production (E&P) companies need to find new oil and gas deposits, rather than on the E&P company itself.

BREAKING DOWN 'Pick-And-Shovel Play'

The expression may have been derived from the California gold rush, where many of those who profited did so by providing the miners with picks, shovels and other equipment needed for gold mining. The idea behind pick-and-shovel plays is that, in the case of E&Ps, for example, it doesn't matter if the E&P Company finds oil and gas or not, they will need to purchase specialized equipment either way.

RELATED TERMS
  1. Oil Services Industry ETF

    A sector exchange-traded fund (ETF) that invests in companies ...
  2. Exploration & Production - E&P

    An E&P company is known to be in a specific sector within the ...
  3. Aged Assets

    Equipment that has outlived its useful life. Aged assets might ...
  4. Integrated Oil & Gas Company

    A business entity that engages in the exploration, production, ...
  5. Equipment Trust Certificate

    A debt instrument that allows a company to take possession of ...
  6. Section 179

    An immediate expense deduction that business owners can take ...
Related Articles
  1. Managing Wealth

    5 Reasons Why Private Equity Investors Like Oil and Gas Companies

    Oil and gas companies may look like a risky industry on the outside, but private equity investors have found reasons to regularly invest in these firms.
  2. Markets

    Unearth Profits In Oil Exploration And Production

    Drill down into financial statements to tap into the right companies and let returns flow.
  3. Markets

    Oil And Gas Industry Primer

    Before jumping into this hot sector, learn how these companies make their money.
  4. ETFs & Mutual Funds

    XOP: Is the Oil & Gas Exploration & Production ETF Still a Buy?

    Read an analysis of the SPDR S&P Oil & Gas E&P ETF. Learn why XOP may not be a buy now, but may be a buy in the near future if oil prices rebound.
  5. Markets

    Is the Oil Industry Now Underinvesting? (OIL)

    With nearly $400 billion in delayed oil investment projects, will today's spending cuts come back to bite us in the wallet at the petrol pump?
  6. Markets

    Investing In Medical Equipment Companies

    Learn the basics about medical equipment companies and how investing in them can benefit growth and value investors alike.
  7. Markets

    How Energy’s Debt Bubble Affects Your Portfolio

    Depressed crude oil prices are here to stay for the foreseeable future. Here's how it will affect an oil industry riddled with unsustainable debt.
  8. Markets

    Tech Startups Eye the Oil Industry

    Although the oil and gas industries have plummeted, high tech companies and investors see promise.
  9. Investing

    5 Biggest Risks Faced By Oil And Gas Companies

    Before investing in gas and oil stocks, consider such factors as political and geological risks.
  10. ETFs & Mutual Funds

    XOP: SPDR S&P Oil & Gas ETF

    Discover the investment strategy behind SPDR S&P Oil & Gas Exploration and Production ETF, and learn what type of investor may find it suitable.
RELATED FAQS
  1. What makes companies that provide seismic data for oil and gas companies attractive ...

    Discover what makes companies that provide seismic data for energy companies attractive investments. Seismic data is essential ... Read Answer >>
  2. What percentage of the global economy is comprised of the oil & gas drilling sector?

    Read about a rising industry that already composes as much as one-twentieth of total global economic output: the oil & gas ... Read Answer >>
  3. What are the main benchmarks that track the oil & gas drilling sector?

    Read about several different types of benchmarks that investors can use to track the overall performance of the oil and gas ... Read Answer >>
  4. What are average operating expenses for the oil and gas sector?

    Learn about the average operating expenses and average operating expenses margin for the oil and gas sector and how they ... Read Answer >>
  5. What metrics can be used to evaluate companies in the oil and gas sector?

    Learn how to analyze oil and gas sector companies using the same metrics and analytical techniques as professional investment ... Read Answer >>
  6. Is the oil & gas drilling sector a good choice for value investing?

    See why the oil and gas drilling sector can present some problems for value investors, although undervaluation can still ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center