Yes, I do own shares of Transocean (NYSE: RIG).
Have I been right a lot about RIG before?
Well let’s see, back in August of 2020, and specially around the time when almost every analyst on the planet was calling bankruptcy for RIG, I wrote my legendary piece “Should Transocean RIG file for Bankruptcy as one analyst suggested?” and concluded that it was all fear and RIG will not file for bankruptcy. I also added that RIG could see a five fold increase in share price if it avoided bankruptcy. At that time, Transocean stock was trading below one dollar. In Feb of 2021, I wrote another article and suggested that RIG can be a potential short squeeze candidate. You can also find it on this site. Since then the share price has appreciated about 35%. While it’s no short squeeze, It still outperformed the market. I still do believe more upside is coming for Transocean.
As I’m writing this article, RIG share price are trading for around $4.22. This gives it a market capitalization of about $2.86 Billion according to Yahoo Finance. If you do some calculations accounting for their assets, backlog and debt you will reach a valuation of about $8.8 Billion as an intrinsic value for the business. That puts the share price somewhere around $12 per share. That’s at least 3 folds higher from where the shares are trading currently. Even better, Gurufocus is estimating a share price of $18.6 for RIG intrinsic valuation as of today. WOW – That makes it really cheap if these calculations are accurate and at a huge discount.
Circumstances are changing in favor of RIG
I don’t need to explain here what RIG does for business. If you do not know, go look them up, but to help you a bit and to put it simply, they rent equipment (drill ships) to drill for oil in the ocean and deep water. Business took a big hit during the past few years and during the COVID pandemic as oil prices plummeted so low. Oil companies did not want to invest in ocean drilling as it is one of the most expensive ways to find oil. Now things have changed. Oil prices have gone up considerably and continue to go up because of many reasons some of which are the following; Shale oil is restricted with Biden’s polices, post COVID oil demand increase, and the Russia-Ukraine war. The increase in oil prices made it profitable for big oil companies to invest in ocean drilling to find new resources of oil to replace the diminishing existing resources and to meet the additional demand. This will not reverse easily and quickly. In fact, I predict oil prices will go even higher and the need for new oil discoveries will be greater especially to replace the Russian oil and gas which supplied Europe before the war. Set assured, new contracts are coming for RIG and at a higher day rates. Any positive development will send the stock rocketing higher. Once RIG turn into a profit again, I predict share prices will go to $8 and then $12 within the next year or so. Of course, there is always the risk of me being wrong, and I have been wrong in the past.
Sit tight, buckle your seat-belts and enjoy the ride
This can be very existing if RIG manages to report profits for the upcoming quarters. The Stock is so stretched down, that any new positive development will push it higher quickly. As I said, fair valuation seems to be around $12 to $18 per share. The increase in share price might happen so quickly it will be thrilling.
Shorts will burn
I hate to say it, but looks like this might be the case if you are shorting RIG. For those who have been long on the stock, I know, it has been very painful and frustrating, but I feel this is about to change for the coming few years. The scales will balance and justice will be served. If you are shorting RIG and do not cover your short quickly, the next few years might be painful.
If you agree or disagree let me know in the comments below.
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