Baker Hughes & Chart Ink $13.6B Deal—Start of Energy's Comeback?

Key Points

• Baker Hughes’ $13.6B acquisition of Chart Industries signals strong M&A momentum and ample financing in the energy sector despite high interest rates.
• Undervalued individual energy plays like Transocean and energy ETFs like XLE present a favorable risk-to-reward setup at potentially cyclical lows.
• Transocean’s deep discount, high short interest, and projected EPS turnaround could trigger a short squeeze and substantial upside.

As the Q2 earnings season continues, the stock market is revealing that some sectors appear more promising than others. The energy sector is quickly taking the lead, offering the best risk-to-reward ratio.

Oil and gas company Baker Hughes Co. NYSE: BKR has broken a record in mergers and acquisitions (M&A) dealings for 2025, inking a deal to acquire Chart Industries Inc. NYSE: GTLS for a total sum of up to $13.6 billion. 

The merger is a bet on future growth areas like Liquefied Natural Gas (LNG) infrastructure, industrial gases, and decarbonization tech. That kind of aggressive deal-making in tight macro conditions shows institutional confidence in energy’s long-term trajectory. And when a global player like Baker Hughes is paying a premium for growth, it's a sign that the broader energy market may be underpriced and that valuations could be bottoming out.

Considering all of the trade tariffs and geopolitical uncertainties facing the financial markets today, it makes sense to expect oil prices to rally after several months of being in a tight channel. For investors, this means there is significant upside potential in the energy sector.

Transocean: High Risk, High Reward at a Discount

If you are looking for aggressive upside, consider investing in individual companies that could be set to get paid first in the oil production and refining process, such as drilling equipment maker and leaser Transocean NYSE: RIG.

The $2.6 billion company offers a compelling speculative play. RIG stock currently trades at just 51% of its 52-week high, despite improving company fundamentals and potential catalysts on the horizon. This sharp discount presents a strategic entry point for new investors, and it is probable that other market participants will soon recognize this. 

Over the past month, the company's short interest has declined 3.2%, signaling the beginning stages of a potential bearish capitulation. Considering there is still $354.6 million worth of short positions open in this name, a sudden rally may very well trigger what’s known as a short squeeze. A sudden rise in oil prices or a strong earnings report could trigger significant buying pressure as these short sellers could close their positions to cut losses.

Wall Street analysts project up to $4.60 per share, implying a 56% upside from current levels. In addition, they expect Transocean to swing from a loss of 10 cents per share to earnings of six cents by Q4 2025. This forecasted momentum comes from more than just a potential rise in oil prices; it also indicates the stock has strong fundamentals backing its rebound. 

Energy ETFs Offer Safer Exposure

Investors who want a more diversified approach to the energy sector can turn their attention away from individual energy stocks and toward energy-focused exchange-traded funds (ETFs) as a way to reducing the bumps along the road.

In this space, the Energy Select Sector SPDR Fund NYSEARCA: XLE is a top choice as it holds major energy names across the value chain, from oil producers to refiners to equipment providers, including some of the biggest international oil names.

Because its top holdings are some of the largest integrated oil companies, whose success depends very little on oil prices, XLE tends to perform well across oil price cycles. In fact, comparing this energy ETF to the broader S&P 500 shows a performance gap of up to 10% over the past quarter, with further room to run if energy continues to rebound.

If you are concerned about tariffs, inflation, and geopolitical pressures threatening supply chains and causing energy prices to move higher, XLE could be a solid and stable choice.

Is a Balanced Energy Strategy the Answer?

The Baker Hughes–Chart deal is more than just another acquisition; it’s a vote of confidence in the sector’s future. As capital returns to energy, investors may find this an ideal moment to rotate in.

For many investors, a good strategy could include combining broad-based stability with targeted upside potential. A core position in XLE offers diversified exposure with lower volatility, while a smaller stake in a name like Transocean allows for leveraged returns if oil surges and sentiment shifts.