Transocean Deserves Better Than This

By Sean Hannon, CFA, CFP, of EPIC Advisors from Covestor.com.

A well-known trading strategy involves buying companies before they are added to the S&P 500 and shorting companies that are being removed from the index. Since so much money is invested either directly in index funds or with money managers who attempt to mirror the index's performance, additions and removals from the S&P 500 offer wild price swings that are dislocated from business fundamentals.

As a value investor, I welcome this dislocation as an opportunity to buy stocks cheaply. A recent example of the S&P effect is Transocean (RIG Quote), the largest offshore driller of oil and natural gas in the world. With a high level of demand, RIG has excellent earnings visibility and a strong backlog of future business. ...