Market Playground

By Jim Van Meerten

When I look at Transocean LTD (NYSE:RIG) I’m reminded of the saying: It’s always darkest before the dawn. RIG’s price has been in a nose dive for several years. Today the stock was 45.69 which is just 28% of the stocks high of 16.00 on 5/1/2008. The stock is still going down and may be an even igger bargain in the near future. The graph provided by Barchart shows at stocks current downward momentum over the past 3 1/2 years:

Transocean Ltd. (RIG) provides offshore contract drilling services for oil and gas wells worldwide. It offers deepwater and harsh environment drilling, oil and gas drilling management, and drilling engineering and drilling project management services. The company also offers well and logistics services. In addition, it engages in oil and gas exploration, development, and production activities primarily in the United States offshore Louisiana and Texas, and in the United Kingdom sector of the North Sea.

As of February 10, 2011, the company owned, had partial ownership interests in, and operated 138 mobile offshore drilling units, including 47 high-specification floaters, 25 midwater floaters, 9 high-specification jackups, 54 standard jackups, and 3 other rigs, as well as 1 ultra-deepwater floater and 3 high-specification jackups under construction. Transocean Ltd. was founded in 1953 and is based in Zug, Switzerland.

Factors to Consider

Barchart technical indicators:

• Barchart uses various technical indicators from 7 days to 6 months to analyze the current direction of a stock’s price.  Currently all the sell signals are weakening which might indicate the stock is about to bottom.
• 64% Barchart overall technical sell signal – sell signals are weakening
• Trend Spotter sell signal also weakening
• The sock is trading below its 20, 50 and 100 day moving averages
• The stock is 46.87% off its 1 year high compared to the market which is just 13.51% off its 1 year high
• The Relative Strength Index is 45.35% and increasing
• Barchart computes a technical support level at 44.76
• The stock recently traded at 45.69 with a 50 day moving average of 49.36
• In the past year the stock is down 34.44% while the Value Line Index of 1700 stocks is down only 2.14%:

Fundamental factors:

• 35 Wall Street brokerage houses have assigned 41 analysts to monitor the company’s numbers
• Revenue is projected to be down 5.00% this year but back up by an increase of 15.20% next year
• Earnings estimates are for a decrease of 72.50% this year but an increase of 114.70% next year and continue at a 1.57% annual rate for the next 5 years
• These consensus numbers resulted in 10 strong buy, 14 buy, 14 hold, 3 under perform and no sell recommendations to clients
• Revenue is down because of the difficulty the company is experiencing in the recertification process for their rigs.  This coupled with delays from suppliers of part needed for recertification has slowed the company from meeting their schedule to get back to previous production goals.
• The acquisition of Aker Drilling of Norway will give them better North Sea exposure,
• The current P/E ratio of 22.06 is higher than the market P/E of 13.40 but will come down as revenue stream come back on line
• The dividend rate of 7.02% is high and the current dividend should even increase
• I know some of you are worried about the Gulf oil spill lawsuits but many experts have analyzed the contracts RIG had with BP and feel that RIG will be insulated from liability

General investor interest:

• I like to use the opinions of the readers of Motley Fool to determine what the individual investor thinks and 6,241 readers expressed an opinion on this stock
• They voted 97% that the stock would beat the market
• The more experienced and savvy All Stars voted 98% for the same result
• Fool noted that 91% of the recommendations by financial columnists were positive on the stock
• Although Jim Cramer gave a thumbs down. Pat Dorsey, Chris Davis and Ron Baron were much kinder

I like to compare a stocks price action against so other stock and today I note that while Rig is down 34% in the past year, Noble (NYSE:NE) is down only 1%, BP (NYSE:BP) is up 1% and Halliburton (NYSE:HAL) is down 16%:

Summary:  

Transocean (RIG) has been a leader in deep water drilling rigs for many years in the past and is positioned to be an even bigger player in the future. In the long run this should be a good stock. Those of you that are looking for an entry point should not be afraid to enter at this level. If you want to squeeze every possible penny I’d suggest you draw a 14 day turtle chart of the stock like the one below and buy in as soon as the bottom channel, presently at 41.28, begins to increase.

Jim Van Meerten is a professional investor with over 40 year experience in investing in stocks, mutual funds and ETFs. He shares his knowledge on Barchart in his daily blogs – Barchart Portfolio. Jim Van Meerten is a Marketocracy Master.