Diamond Offshore: High Value at a Bargain Price

02/24/2017 9:00 am EST


Jim Powell

Principal Analyst, Global Changes & Opportunities

Companies that drill for energy are slow to benefit from rising oil and gas prices. That’s because most producers won’t start looking for new supplies until the new prices seem likely to stick, asserts Jim Powell, editor Global Changes & Opportunities Report.

Likewise, most investors won’t buy the stocks until their outlooks improve. That delay is giving us an opportunity to acquire high-value E&D stocks at bargain rates.

Diamond Offshore Drilling (DO) appears particularly attractive. The company is one of the few in its industry that can operate in water that is as much as 12,000 feet deep. There is very little competition for such challenging projects.

Diamond Offshore has a fleet of 28 drilling rigs that includes 19 submersibles. Customers include both private and government energy companies. The company has operations in the US, Mexico, South America, Europe, Africa, and Indonesia. There are no projects in the volatile Middle East.

Diamond Offshore is currently investing in additional equipment. Although the program adds to debt, it will give the company the ability to accept more contracts when conditions improve — a situation that management clearly expects is on the way.

Of course, I could be wrong about energy prices staying up. Nevertheless, I am confident that the long-term outlook is for more expensive energy, and more profits for leading exploration and development companies.

The sector can be volatile. But from today’s low stock price, Diamond Offshore Drilling should be a top performer for long-term investors.

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