Transocean Ltd. (NYSE:RIG) is one of those companies that you look at and say to yourself, "It seems as if everyone has given up on the name right now, is it time to get greedy as others are fearful?" Am I right, or am I right? But you would be doing yourself a disservice if you don't stay prudent and do some homework on the names in your portfolio. In the last article I wrote about the company, I stated, "This is definitely a deeply discounted stock which I won't be buying until I see something change fundamentally with oil itself." That said, I'm going to take a look at the stock right now and see what has happened recently.
It has been very well-publicized that OPEC said they will not be cutting production anytime soon, causing an "oil war" with the U.S. for lack of a better term. Analyst Brian Singer at Goldman Sachs came out shortly after the announcement saying that shale productivity in the U.S. is going to need to taper in order keep oil prices at $70 to $75 for 2015. Singer prefers energy names in the refining and pipeline business here in the U.S. Although you won't be able to find any exploration and production companies on the "buy" list, Transocean is one of the favorites of the "sell"-rated stocks.
It seems on days when oil makes a bounce it is the integrated names that are doing well. Piggy-backing on the idea of Goldman's suggestions that refiner stocks should be some of the favorites, stocks like Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM) seem to do well as they have a refining portion to their portfolio, whereas companies like Transocean -- with no refining -- continue to get hammered.
Guggenheim analyst Darren Gacicia even gave up on Transocean by downgrading it to "neutral" from a "buy" rating. The move was kind of late given the hemorrhaging in the industry over the past couple of months. The move came as a result of continued pressure on the commodity itself and the fact that Transocean is one of the most levered in the industry, while a 2015 dividend cut is imminent.
Transocean is down 61% so far in 2014 and has almost a 17% dividend yield. This cannot continue forever; something is going to have to give. Given the problems in the industry and with Seadrill leading the way with the first dividend cut in the industry, it will only be a matter of time before Transocean will give in to peer pressure. I've given up trying to pick the bottom in the name since late September, and the only way I'm buying this name is right before the ex-dividend date for now. That should be in February 2015 sometime, unless something dramatically changes with respect to the industry or the commodity.
Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade.
Disclosure: The author is long RIG.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.