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.
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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.