The stock market has created new buying opportunities thanks to a market correction of about 10% in just the past few weeks. In particular, stocks in the oil sector have taken the brunt of the decline because of the concurrent drop in the price of oil. The price per barrel was over $100 earlier this year, but it has dropped to about $83. That is a decline of over 20%. Many stocks in the oil sector are down about 20 to 50%, off the highs achieved in 2012. However, the selling has been indiscriminate and it's now a great time to buy some stocks that have been unfairly punished in the sell off. Seadrill Ltd. (NYSE:SDRL) is one stock investors should be considering for the following reasons now:
- Seadrill operates globally and offers an offshore fleet of drillships, jack-up rigs, semi-submersible rigs and tender rigs which are used for drilling in shallow to ultra-deepwater areas. The company has about 66 units in operation in places like Brazil, The Gulf of Mexico, Africa, Norway, and Asia. Seadrill's fleet gives it the versatility to serve some of the largest oil companies in nearly any location. Even with lower oil prices, drilling remains highly profitable and this company has substantial contract bookings for its fleet in 2012, and beyond.
- Seadrill was formed just a few years ago, and it went public in 2005. It has a policy of paying a large portion of company earnings out in the form of dividends to its shareholders. Because the company is relatively young, it has some of the most modern and newest equipment in the world. With one of the world's youngest fleets, it is able to minimize maintenance costs and downtime, plus it commands premium rates for its equipment.
- The stock traded up to around $42 earlier this year, but it now trades for close to $32. At this level, investors could be poised for major dividend income with the yield being about 10%, and for capital gains, since the stock could rebound from these low levels.
- As stated earlier, Seadrill pays big dividends and it also has a history of raising the dividend as earnings grow. For example, in 2007, the quarterly dividend was just 25 cents per share. However, the company has been raising the dividend every year since 2007, and it now pays a quarterly dividend of about 80 cents per share. This gives the stock a yield of roughly 10%. Between a potential rebound to about $35 per share and the dividend, investors who buy now could be positioned for returns of 20% or more (since the stock could go higher), in the next year.
Key Data Points For Seadrill, From Yahoo Finance:
- Current Share Price: $32.56
- 52-Week Range: $24.68 to $42.34
- Dividend: none
- 2012 Earnings Estimate: $3.17 per share
- 2013 Earnings Estimate: $3.55 per share
- P/E Ratio: about 10 times earnings
Data is sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SDRL over the next 72 hours.
Disclaimer: No guarantees or representations are made. Please consult a financial advisor before making investments.