McDermott International (MDR) shares topped out at around $15 in early March, but the European debt crisis and declining oil prices have sent this stock sharply lower. The stock now trades for less than $10 per share, and this looks like a great buying opportunity. McDermott provides engineering and construction services to the oil and gas industry, and it is poised to benefit from the global need for more energy in the future. With all the fear and negative headlines, some investors are clearly selling without considering the positives and the longer-term potential. Here are four reasons why investors should consider buying this stock now:
1. The stock is oversold and just plain cheap. McDermott shares now trade for less than half the 52-week high and within about 50 cents of the 52-week low. It also trades for about 7 times 2013 earnings estimates, which is well below the average P/E ratio of around 13 for the S&P 500 Index.
2. McDermott has announced a few significant contract wins in 2012. In March, it announced receiving a full engineering, procurement, construction, and installation contract for a platform for the Al-Khafji Joint Operations. In early May, it won another contract from for BG Trinidad & Tobago Ltd. to build two new permanent living quarter modules.
3. McDermott has about $3.45 billion in revenues, a very strong balance sheet with about $680 million in cash, and only $93 million in debt. This balance sheet strength is very important when the economy is weak and facing uncertainty. A cash-rich balance sheet reduces risks for investors.
4. On May 7, an analyst at Howard Weil upgraded the stock from market perform to market outperform and set a $16 price target. With the stock trading near $10 per share, this could provide investors with gains of about 60%. Unless the world economy is headed for a depression, McDermott shares are probably close to the bottom. That means the downside could be limited, while the upside remains quite promising.
Here are some key points for McDermott:
- Current share price: $9.90
- 52-week range: $9.34 to $22.06
- Earnings estimates for 2012: 88 cents per share
- Earnings estimates for 2013: $1.23 per share
- Annual dividend: none
Data is sourced from Yahoo Finance.
Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.