Earlier in the year, at the end of May, I wrote a bullish article on Diamond Offshore (DO). At the time, shares of Diamond were getting crushed, as the hysteria over the BP spill was in full swing, with many speculating that BP would go bankrupt. The offshore drilling industry was just starting to go under a microscope by regulators. The drilling moratorium was just a twinkle in Ken Salazar's eye. People refused to go near drilling stocks because of regulatory uncertainty, possible increased insurance costs, the risk of another spill, and most importantly, the general dislike of the sector.
It has been nearly five months since all of this, and most of the reasons to sell are nearly gone. The moratorium and regulatory scrutiny is basically over. Insurance costs will be passed on to customers. The BP spill has ended, it is out of the news, and cleanup is moving swiftly. The risk of another spill is the exact same as before the BP spill (which is low), but perception of the risk is lowered. The general dislike and hatred of anything in the sector is slowly ending. The opportunity to purchase great companies at ridiculous prices is may be ending.
Yet, DO is trading at basically the same price as when my article came out and when I started buying. The stock price took a big plunge, from high $60's per share to mid $50's, after the article when people were speculating that Diamond had a spill themselves. However, anybody who took the time to listen to management or actually read past the headlines knew it was a non issue, and the stock eventually recovered to where it is now. So even though these issues are ending, today's buyers are offered a rare opportunity to buy one of the highest quality oil drillers in the world, at just 10 times earnings......Read the entire article.
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