Most of my portfolio is in conservative investments with a good portion in high yielding equities. I also have a good deal of cash on hand as well as a few short positions. I do allocate 5% to 10% of my portfolio to aggressive high risk/high reward plays. My newest purchase within this allocation is a $1.30 a share speculative pick from the energy sector, Cal Dive International (NYSE:DVR). The company has fallen on hard times and the stock that traded in the double digits as recently as three years ago has a 1 handle. However, it appears the company is slowly turning around and is well placed if offshore drilling activity continues to accelerate. Given it is trading at a low level of book value, I love the risk/reward proposition at these levels.
Cal Dive International is a marine contracting company that provides manned diving, pipelay and pipe burial, platform installation, and platform salvage services to the offshore oil and natural gas industry. The company owns and operates a fleet of 29 vessels comprising 19 surface and saturation diving support vessels, 6 pipelay/pipebury barges, 1 dedicated pipebury barge, 1 combination derrick/pipelay barge, and 2 derrick barges.
10 reasons DVR is still is a solid speculative play at $1.30 a share:
- DVR is a play on the continuing ramping up of offshore drilling activity worldwide. Global offshore spending is expected to go from approximately $50B this fiscal year to $70B in 2016.
- The company has huge operating leverage as its vessels are running at approximately 40% of utilization. Even getting to 50% would have huge positive impact on the bottom line.
- Insiders were net buyers in the stock in the second quarter and at higher than the current stock price.
- The stock is ridiculously cheap at just 40% of book value and 28% of annual revenues.
- Backlog has grown from $178mm at end of 4Q2011 to $238mm at end of 2Q2012.
- The company has done a good job of reducing debt over the past five years. Debt stood at $314mm in FY2007 and was down to $134mm at end of 2011.
- Gulf of Mexico offshore is recovering after the gulf oil spill. DVR is the largest supplier of diving services in the gulf.
- 2013 is the transition year. DVR is expected to post a 35 cent loss for FY2012 but analysts believe it will be 7 cents a share in the black in FY2013. They also project an almost 30% rise in revenues in 2013.
- The mean analysts' price target by the five analysts that cover the stock is $3 a share, more than double its current stock price.
- DVR is at 5 year lows and was at over $14 a share in that time span. The stock looks like it is trying to put in a bottom here. (See Chart)