Storm Clouds Threaten Offshore Driller Atwood, So Avoid the Stock

Bargain-hunting Pollyannas are expressing unwarranted optimism over several oil drillers, viewing their beaten-down shares as attractive value plays amid higher crude prices.

But it looks like a sucker's bet, and investors should avoid these dangerous equities.

A case in point is Atwood Oceanics (ATW) , which is scheduled to report third-quarter earnings on Friday. With a market capitalization of just $462.67 million, this Houston-based offshore drilling contractor is a small-capitalization player in an industry dominated by behemoths such as Schlumberger and Transocean. 

Schlumberger is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells SLB? Learn more now.

Atwood Oceanics owns a fleet of 11 mobile offshore drilling units, as well as two ultra-deepwater drill ships under construction.

Shares jumped more than 1% on Monday, though they are down again on Tuesday, as the price of West Texas Intermediate, the U.S. benchmark, gained 0.38% and Brent North Sea crude, on which international oils are priced, gained 0.56%. Atwood Oceanics shares have dropped nearly 30% this year, which the energy bulls have interpreted as a buy signal.

Investors shouldn't touch the stock, or they could get burned. Growth opportunities abound in resurgent sectors such as aerospace/defense, banking and technology, so it makes no sense to put portfolios at needless risk in a troubled niche.

Let's start with projected earnings.

The average analyst consensus is for Atwood Oceanics to report third-quarter earnings of 60 cents a share, compared with $2.32 a share a year earlier. Fourth-quarter earnings are estimated at 15 cents a share, compared with $1.32 a share a year earlier.

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