Transocean Ltd (Ticker: RIG) Gaps Higher on Earnings and Good News from the Gulf
The Deep Horizon drilling platform that blew-up and sank in the Gulf of Mexico above BP’s Mecondo well - claiming 11 lives and resulting in one of the worst singular ecological events in over a generation - was owned by Transocean Ltd. (Ticker: RIG), headquartered in Zug, Switzerland.
Since this tragic event, wise investors have for obvious reasons sold this stock, even though it has been one of the “blue chip” stocks of the oil industry with solid operating profits driven by strong and stable rig leasing rates.
Just prior to this disaster, RIG stock was priced at around $92/share. Its 52 week low of around $42.58/share was reached in June at the height of the uncertainty surrounding this disaster. It has since bounced from this low to as high as $55.80/share, three times since June 9th.
Two events in the last twenty four hours have caused the RIG stock to burst above this recent approx. $55.80 ceiling (what investors call “resistance”). First, Transocean Ltd. reported excellent quarterly earnings last night of $2.22/share. Second, the U.S. government has declared that the oil spilled in the Gulf has been dramatically dispersed and reduced.
RIG stock is up around +25.3% in the last four days and now up +36% above its recent 52 week low. That’s a big move in a short amount of time. RIG is still over -37% off its recent highs. BP is up just over +50% off its 52 week lows, within six and a half weeks.
Helping to mitigate the effects of this disaster on its value as a going concern, Transocean Ltd. has liability insurance and has in its contract with BP indemnifications concerning sub-surface and well-control issues, BUT BP is fighting this and the outcome is far from certain.
At the Stock Market Companion (stockmarketcompanion.com), we believe that the RIG stock has some room to the upside based on the above mentioned events over the past twenty four hours. It is not hard for us to imagine RIG shares also bouncing +50% off its recent lows, taking it to $63.75/share and beyond. We see perhaps a +10% near term opportunity here, BUT the stock has already come far and large market participants have unfortunately developed a habit of taking profits at the drop of a hat instead of letting things run, fleecing late arriving investors who are buying on strength and hoping for more.
We won’t run after this stock in this market environment. Our best case scenario for this stock is that it takes a bit of a breather and pulls back some or establishes a lateral consolidation before deciding to march higher.
Investors in RIG are at risk at all times pending the final outcome of liabilities and costs related to this Mecondo well disaster. Recent stock activity has demonstrated extreme volatility. The stock is also subject to sudden down-drafts in price as risk tolerant investors who purchased shares near the recent 52 week lows look for prudent opportunities to take profits on their now strong gains.
This is not a recommendation for any particular individual. We are simply reporting our observations in the marketplace. Please see our disclaimer below.
The Stock Market Companion does not and cannot give individual investment advice. According to the State of Washington RCW 21.20.005 the Stock Market Companion is not a Registered Financial Advisor and we do not render any advice on the basis of the specific investment situation of a particular individual. This information is for a wide readership and is not intended for any particular individual, and under no circumstances should this news update or our SMC 15MinuteStock Market Update or Watchlist be considered an investment recommendation or plan for any specific individual. The Stock Market Companion will not be held liable for any actions taken by anyone taking action on this information. Please seek the council of a broker or other licensed investment professional for accurate pricing and concerning the suitability of all investments that you may be considering. Disclosure : The Stock Market Companion does not hold positions in the above mentioned securities at this time. Based on market related or personal events these positions may change without notice.
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