Dig Into Deepwater Plays

This column was originally published on RealMoney on March 7 at 1:08 p.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

Pemex, the world's third-largest producer, is at last starting to ramp up spending for drilling. Mexico has become a net importer of fuel, having to bring in $10 billion in product, which is really incredible. That has to stop, so it is committing $17 billion to drilling.

Exxon (XOM Quote) is moving its drilling budget up, too, according to reports today. Meanwhile, oil is in short supply, according to the inventory numbers.

The drilling that needs to be done is largely deepwater. There are only three really fabulous deepwater plays: National Oilwell Varco (NOV Quote), which builds them, GlobalSantaFe (GSF Quote) and Transocean (RIG Quote) to drill them.

These last two companies' stocks simply haven't gotten the respect due their visibility and their multi-year rolloff of low-priced contracts for much higher-price-tag contracts over the next three years. National Oil has a $6 billion backlog growing at 20%; its market capitalization is equal to that backlog! A competitor, Hydril (HYDL Quote), got a bid from Tenaris (TS Quote) that would imply a $96 minimum price target for NOV.

Yet, the bears will not let these stocks lift. They just won't.

In the end, the bears are going to be run over as the fundamentals are too good. I am laying siege to Transocean and want to be as big as possible as I can for Action Alerts Plus.com. This is where the action is for the next couple of years. That's the level of conviction I have about the deepwater plays.