A Deepwater Play Worth Fishing For


Jim Jubak Image Jim Jubak Founder and Editor, JubakPicks.com

Ensco has a decent yield and an aggressive strategy that should pay its weight in black gold as the market turns around, writes MoneyShow’s Jim Jubak, also of Jubak’s Picks.

AllianceBernstein upgraded a bushel of energy stocks this morning.

Halliburton (HAL) went to outperform from market perform. Talisman Energy (TLM) went to outperform from market perform. Anadarko Petroleum (APC) went to outperform from market perform. SeaDrill (SDRL) went to market perform from underperform. And Ensco (ESV) went to outperform from market perform. (AllianceBernstein did downgrade Weatherford to market perform from outperform.)

The one I’d like to highlight from that list is Ensco.

I understand the upgrades—since my Jubak’s Picks portfolio is already long energy with positions in Schlumberger (SLB), Statoil (STO), SeaDrill (SDRL), and Western Gas Partners (WES). The energy sector is cheap right now, and these stocks are a good long-term investment if you think the global economy will ever pick up and lead to stronger demand for oil.

But I also understand that the timing of that turn in demand is very unclear, and the sector has been pounded in the last year—Schlumberger, for example, is down 25.5% in the last 12 months—and could get pounded some more on fears that the economies of China and the United States are slowing.

That’s why I’ve favored energy stocks with dividends—with the exception of Schlumberger, which yields just 1.8%, all the energy stocks in Jubak’s Picks yield more than 4%. You get paid a good yield while you wait.

On a dividend basis, Ensco is more aggressive than most of the AllianceBernstein picks, since its dividend is a relatively low 3.4%. But I like the way that the company has continued to pursue its strategy even through the downturn in the sector.

On June 26, Ensco announced that it would buy an additional advanced ultra-deepwater drillship from Samsung, because of stronger than expected demand from oil companies for the most advanced deepwater drilling platforms.

Ensco’s strategy has been to build the youngest deepwater fleet in the sector, and to, as much as possible, standardize that fleet.