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Transocean's ( RIG) cheap shares and dominance in offshore oil drilling make it seem like a sure bet. But its investors might have to wait at least a year for any significant gains.

The Switzerland-based company is the world's biggest offshore driller with 136 rigs, including 34 that can run in water deeper than 4,500 feet. With demand for petroleum picking up and the price of crude oil edging higher, that seems like a favorable position.

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However, Transocean rigs might sit idle as oil and gas producers cut capital spending this year. Overcapacity could stifle earnings at least though next year and potentially through 2011, according to at least one analyst. That means Transocean will collect less lease fees from customers that use its equipment, making profits elusive.

Judson E. Bailey, a managing director at Jefferies & Co. ( JEF), expects the firm's net income to decline through 2011. He says the deepwater drilling industry might be "modestly oversupplied by late 2010 to 2011, thus facilitating a sharper and more prolonged dayrate and earnings downturn." He downgraded the company to "hold" from "buy" in a recent report.

Transocean, which controls 38% of the deepwater drilling market, has a history of wide stock-price swings. After falling below $20 in 2003, the stock climbed to $160 last year. When crude prices collapsed to less than $40 after approaching $150 last July, the company's shares imploded. They've since recovered, rising 61% this year as the Morgan Stanley Oil Service Index climbed 43%.

Analysts expect Transocean's profit to change only slightly during the next two years compared with 2008, when it earned $13.09 a share. The shares have been trading at 5.8 times this year's projected earnings, less than half the industry's average price-to-earnings ratio of 12.

Even though the shares seem like a good buy, Bailey says Transocean investors "should think about taking profits at current levels and eventually redeploying funds" in drillers such as Ensco International ( ESV), Noble ( NE), Pride International ( PDE) and Rowan Cos. ( RDC). Bailey expects profits of some of the competitors to trough next year.

TheStreet.com Ratings grades Transocean a C-plus, a "hold" recommendation. Even though Transocean is the industry's leader, its competitors offer more growth potential.

TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

Richard Widows is a senior financial analyst for TheStreet.com Ratings. Prior to joining TheStreet.com, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.

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