The Best Value Buy In Energy Today [Diamond Offshore Drilling Inc, Petroleo Brasileiro Petrobras SA (ADR), Statoil ASA(ADR)]

oil rig spillSteve Mauzy: When baseball legend Wee Willie Keeler was asked the secret to his hitting prowess, the diminutive right fielder replied, “Keep a clear eye, and hit ‘em where they ain’t.”  Sage advice, considering Weeler retired with a .341 batting average, the 14th all-time highest, in 1910.

Keeler’s words ring as true today as they did 100 years ago. What’s more, they ring true not only for baseball. An exceptional investment return, like an exceptional batting average, is frequently the by-product of hitting ‘em where they ain’t.

In energy, there is one place where investors notably “ain’t” hitting ‘em, and that’s offshore oil-and-gas drilling. The sector is as popular with investors as the chronically complaining employee is with co-workers.  Investor aversion is evinced by some of the highest yields among energy investments.

How to Profit From Offshore Drilling 

One offshore driller, Diamond Offshore Drilling (NYSE: DO), offers a particularly expansive, unpopulated field for investors. Five years ago, Diamond shares were trading over a $100; today, they trade under $50. The low price has pushed the yield to over 7%, a five-year high.

A slew of analysts downgrades have weighed on Diamond’s share price. For the past year, these Doubting Thomases have forecast nothing but gloom-and-doom. Fracking (where everyone is hitting ‘em these days) is the future, they reason. Therefore, offshore drilling will forever be plagued by weak demand and overcapacity.

But a funny thing happened on the road to obsolescence. In April, Diamond reported first-quarter results, which handily beat expectations: Adjusted earnings posted at $0.93 per share versus analyst expectations of $0.65 per share. Revenue was $709.4 million versus expectations for $686.3 million.

Better yet, the dividend – which was of pressing concern – remained intact. Diamond declared its usual special $0.75 per share quarterly dividend on top of its normal $0.125.

The share price rallied, if only briefly.

Earlier this month, Norwegian oil giant Statoil (NYSE: STO) terminated a contract with Diamond for the mid-water semi-submersible Ocean Vanguard. The rig was contracted for a dayrate of roughly $454,000 and was supposed to run through Feb. 2015.

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