2. Diamond Offshore Drilling ( DO) is an oil-and-gas drilling contractor, with expertise in deepwater, harsh-environment and semisubmersible drilling. Diamond's stock was an indirect casualty of the BP ( BP) Gulf spill as its practices came under scrutiny and the area was closed for further operations. Houston-based Diamond has suffered an annualized share-price drop of 15% since 2008. Its stock has sunk 19% in the past 12 months, but has rallied 15% in 2011 as crude oil surpassed $100 a barrel. Fourth-quarter profit decreased 12% to $242 million, or $1.74 a share, as sales fell 5.6%. The operating margin fell from 50% to 40%, as Diamond's pricing faltered. Diamond's stock receives lackluster reviews from analysts, with only 16% of those evaluating the company rating its stock "buy." The most bullish firm on Diamond is Goldman Sachs, which expects its stock to advance 29% to $98 within the next 12 months. Diamond should be watched closely for a pullback. It is already cheap, but may become even cheaper if the long energy trade unwinds. The stock trades at a trailing earnings multiple of 11, a forward earnings multiple of 14 and a cash flow multiple of 8.2, signifying peer discounts of 58%, 32% and 59%, respectively. JPMorgan, which is bearish on Diamond and nearest competitor Transocean ( RIG), fears another potential cut in the dividend, given Diamond's "conservative new build program" and its lack of "exposure to the high spec jackup market." Diamond pays a quarterly dividend of around 13 cents, translating to an annual yield of just 0.7%. But, it also pays special quarterly dividends, which, admittedly, have fallen from a high of $1.88 in 2010 to 75 cents in the latest quarter. Nevertheless, the stock still offers a forward dividend yield of 4.6%, assuming the 75 cent special distribution is maintained. On a positive note, most of Diamond's fleet is contracted through 2011 and, according to skeptic JPMorgan, day rates are increasing, providing a potential bullish setup for the stock. Although Diamond may suffer further weakness, management is focused on shareholder returns. The dividend has grown 11% and 16%, annually, over a three- and five-year span, respectively.