Nathan Slaughter

Despite what any financial academic or index fund advocate tells you, the market isn't perfectly rational. If it were, then it would be impossible to identify a stock that is meaningfully undervalued.

There would literally be no way for an active stock picker to beat the market -- other than blind luck.

But, as I was saying... that's not the case. The market is good, but it's not perfect -- it makes mistakes.

And we should all be thankful for that. Otherwise, there'd never be any exceptional buys. You can't get ahead by paying full price all the time. And we only get to buy stocks at attractive discounts of 50% or more because the market goofs up from time to time.

That said, I think the market is making a big mistake with Patterson-UTI Energy (Nasdaq: PTEN) right now. Here's the story...

Patterson-UTI is a leading provider of land-based contract drilling services. The company also assists with other critical tasks such as hydraulic fracturing and well cementing. The firm has a large fleet of 350 drilling rigs at its disposal, which are dispatched all across North America.

Demand for drilling rigs tends to rise and fall along with the peaks and valleys of oil and gas prices.

Like most of the companies in the energy drilling space, the company got hammered in 2008 when oil prices nosedived from around $150 to $40 a barrel.

The company's drilling business was essentially cut in half over that difficult stretch. The stock followed suit, plunging from a high of $37 a share to a low in the single digits.

But Patterson made a remarkable comeback in 2011. The company caters mainly to small- and medium-sized independent producers -- and those customers ramped up their drilling activity in a big way last year.

The company started the year with 194 rigs working in the field and ended with 232. Aside from the stronger fleet utilization, customers were also willing to pay higher rates. In fact, each of the firm's rigs raked in an average of $21,980 for every day on the job in the fourth quarter -- up from $19,090 a year earlier.

Nathan Slaughter

Nathan Slaughter is Chief Investment Strategist of Market Advisor, Scarcity & Real Wealth, and Energy & Income at