Transocean Ltd. (RIG), SPX Corporation (SPW) and comScore Inc. (SCOR) are three stocks that have sold-off sharply in recent days, but may be worth a second look for short-term value investors. In this article, we’ll take a look at these three companies, why they declined, and why short-term value investors may want to pick up some shares at these levels.
Transocean’s Valuation Remains Attractive Transocean Ltd. (RIG), an international provider of offshore contract drilling services for oil and gas wells, moved sharply lower in recent days after reporting lackluster second quarter results. On August 4, 2011, the company reported earnings of 48 cents per share, compared with 78 cent estimates, on revenue of $2.33 billion that were in-line with estimates.
Despite the lower-than-expected earnings figures, due to one-time items and expenses associated with the Macondo incident, some value investors see potential in its sum-of-parts valuation. Ultimately, a sale of spin-off of some of these non-core assets could unlock value. Gabelli analysts, for instance, have said that the sale of spin-off of non-core assets could be a near-term catalyst for the stock.
Investors looking to take advantage of this may want to consider purchasing long-term stock options called LEAPS, which offer the longevity of equity with the leverage of options. Currently, at the money 55 Jan ’13 calls are trading at $8.45 per contract, while the 55 Feb ’12 calls are trading at $5.45 a piece.
SPX Sell-Off May be Significantly Overdone
SPX Corporation (SPW), a global manufacturer of highly-specialized and engineered solutions across a number of industries, recently fell more than 25% after reporting in-line second quarter earnings but weaker-than-expected forecasts. The company projected 2011 EPS of between $4.25 and $4.55 per share, compared to a consensus of $4.57 per share, while its margins have come under pressure.
Despite the troublesome report on the surface, some analysts believe that the figures may not be as bad as they seem. Stifel Nicolaus believes that the company’s guidance issue was caused by seasonal and project timing factors, while management did a great job explaining the margin softness on its conference call. As a result, the analyst believes the sell-off was way overdone.
Investors looking to capitalize on this opportunity may want to consider creating a pairs trade by purchasing the equity or call options, while offsetting any further weakness in the market with a put option on a broader index, like the PowerShares QQQ Trust ETF (QQQ) or a large industry player.
comScore’s Drop Creates a Buying Opportunity
comScore Inc. (SCOR), a provider of digital marketing intelligence services to help customers make business decisions, fell more than 30% this week after reporting in-line financial results with lower-than-expected forecasts for the year. The company expects to generate revenue of between $231.1 and $234.7 million, compared with a consensus of $237.81 million, in 2011.
Despite the significant drop, or perhaps because of it, some analysts see long-term potential in the stock and a great buying opportunity at these levels. For instance, William Blair remains positive on the stock and recommended using the sell-off as a buying opportunity, earlier this week.
Investors looking to capitalize on this opportunity may want to consider hedging their equity position with an industry ETF like Internet HOLDRS ETF (HHH) or the B2B Internet HOLDRS ETF (BHH) by purchasing put options on these names.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.