I penned an article back in late December on why I thought Transocean (NYSE:RIG) and Diamond Offshore (NYSE:DO) were undervalued and should have strong performances in 2012. Both stocks have turned in very solid gains since the article and given recent events I think Transocean still has some further to go even with the almost 20% gain since my piece ran in Seeking Alpha.
Key recent events for RIG
- The company just received an important court win against BP p.l.c. (NYSE:BP) around the gulf oil spill.
- Mario Gabelli immediately chimed in that this ruling should shield RIG from most of the liability from the gulf oil tragedy and reiterated his firm's "Buy" rating on the stock.
- Although Noble Corporation (NYSE:NE) recently had a slightly disappointing earnings report, utilization in the Gulf of Mexico increased significantly which bodes well for demand for Transocean's rigs there as drilling increases.
4 reasons RIG is still a good buy at $47 a share:
- The company is selling at less than 8 times operating cash flow and yields almost 7% in dividends currently.
- The median analysts' price target on RIG is now $60 which is almost 30% above current prices.
- Even after the recent pop, the stock still sells near the bottom of its five year valuation range based on P/B, P/S, and P/CF.
- The stock is gaining strength and just crossed its 50 day moving average (see chart).