This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Transocean Investors, Now Is the Time to Buy More Shares

Stocks in this article: RIGCAMNOVSDRL

NEW YORK (TheStreet) -- For the past eight months, anyone investing in offshore drilling giant Transocean (RIG) has drowned in losses. The stock has fallen more than 30% since shares hit a high of $55.74 in  November.

Shares, at around $39, are down more than 21% on the year to date, trailing the energy sector's 14% gain. Transocean reports second-quarter earnings Wednesday.

But don't worry. Given Transocean's status as the world's largest offshore driller and its dominant position in the ultra-deepwater float industry, now is the time to buy. The market has gotten this story wrong.

Read More: A Simple Options Trading Strategy That Beats the S&P 500

With the stock trading at just nine times trailing earnings, these shares are cheap.

Rivals Cameron International (CAM) and National Oilwell Varco (NOV) are trading at multiples of 25 and 14, respectively. Transocean is being discounted by 11 points below the industry average P/E of 20. And even based on next year's estimates, Transocean's P/E is only at 11.

At some point the market will realize its mistake. With the company's strong backlog and ample cash supply, Transocean is poised to rebound. With a noticeable increase in global energy spending, the stock will be a beneficiary of that demand, reaching $45 to $48 per share in the next 12 to 18 months. Here's why.

First, contrary to popular opinion, the company's fleet of rigs is not the Achilles heel it is perceived to be. The company has roughly 92 units that are either in operation or are under construction. Within this fleet, Transocean owns close to 30 floaters.

The floaters are seeing strong demand, particularly the high-spec floaters, which is now contributing close to 75% of total revenue. Only Seadrill (SDRL) comes close with 21 floaters.

Secondly, Transocean is no longer dealing with excessive downtime issues. In the most recent quarter, total average day rates jumped 14% year over year. This meaningful increase demonstrates how management's efficiency improvements are beginning to work. The company is also focusing on value creation.

Read More: Jim Cramer: Gannett Stock Should be Bought With all of the Spinoffs

To that end, management is looking to divest its drilling services segment by the end of this year, which will help Transocean achieve a higher-yielding asset base. This combined with management's plan to spin-off a portion of its mid-water floaters, will allow the company to decrease its costs.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,827.75 +12.81 0.07%
S&P 500 2,072.83 +5.80 0.28%
NASDAQ 4,787.3170 +29.0650 0.61%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs