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Diamond Offshore Drilling (DO) appears to have a promising future which institutions have recognized. They own almost 96% of the stock. Individual investors, however, are yet to spot the company.

Diamond Offshore is an oil and gas contract driller with a worldwide operation. It focuses on deepwater drilling and has equipment located in the Gulf of Mexico, North Sea, Africa, South America, Southeast Asia and Australia. The company is currently upgrading its equipment, particularly its deepwater semi-submersibles. In January of this year its equipment inventory included 44 mobile offshore drilling rigs, 30 semi-submersible rigs, 13 jackup rigs and a drill ship. All of this type of equipment is currently in demand for oil exploration.

With sales growth of 28.9% a year (vs. the industry average of 17.8%), annual income growth of 40.4% (vs. the industry average of 14.9%) and a Return on Equity of 36.9%, Diamond Offshore is well ahead of its competition. It's one year forward looking price to earning ratio [PE] of 9.44 and an impressive price to earnings growth ratio [PEG] of 0.78 (five year expected) add to its desirability.

Clearly, the oil and gas drilling industry has risks. Crude prices are volatile. Drillers must contend with both unstable governments and miscreant local populations. Natural disasters always pose a hazard. During Hurricane Katrina Diamond Offshore lost a $14 million (book value) jack up rig, the Ocean Warwick.

Nevertheless, the industry is currently attractive. The demand for oil is increasing at a faster rate than the discovery of new reserves. Long term, the demand for contract drilling is expected to increase and Diamond Offshore is positioned to take advantage of this demand.

Diamond Offshore Drilling is a good choice for a longer term hold.

Disclosure: none

Source: Diamond Offshore Drilling: Undiscovered By Individual Investors