One sector generating major gains in 2023 went largely unnoticed – offshore oil stocks.
Stocks in the sector exploded over the past few months, with some doubling in price (or more). One analyst notes a few key factors making offshore oil stocks an ideal play today.
First, high utilization rates keep offshore oil companies busy generating revenue. At the same time, they trade at a fraction of their replacement cost, making them objectively undervalued.
Investors primarily focus on other energy sectors, like renewable stocks and natural gas selections. But these companies are working under the radar, generating energy and whopping gains for investors able to recognize their potential.
Weatherford International (WFRD)
Weatherford International (NASDAQ:WFRD) stock is up nearly 80% year to date (YTD), but the boom isn’t over yet.
Beating bankruptcy, the company’s aggressive restructuring is paying dividends today. The company’s quarterly income consistently rises, hitting $1.12 per share in the most recent quarter and marking $3.51 per share over the past twelve months.
At a slightly higher price than other offshore oil stocks, analysts assess WFRD’s current price as roughly near its fair value. But, as restructuring continues amid elevated energy costs, the company stands uniquely positioned. Rapidly trimming operational fat and optimizing processes, Weatherford may continue riding its current momentum wave that hasn’t yet peaked.
Transocean LTD (RIG)
Transocean LTD (NYSE:RIG) is priced much more attractively than Weatherford, trading at a measly 0.63 price-to-book ratio. That stat alone makes Transocean a value play despite the stock’s 78% climb since January.
Analysts consistently rank RIG a Buy, with shares trading below fair value. The company does plan to issue new shares as part of a secondary offering, as revealed earlier this month. This poses a dilution problem for existing shareholders, but it’s a small price to pay at this value for potential continued upside.
While RIG is a riskier play based on steady (albeit slim) revenue and tight margins, it is improving quarter over quarter across all fronts. As renewable energy efforts stall, and global demand increases, RIG is one offshore oil stock positioned to capitalize on its ongoing momentum.
Tidewater (NYSE:TDW) performed a bit below the other two offshore oil picks, returning “just” 66% year to date (YTD). Still, it’s fundamentally stronger than both, so it may just be beginning its run.
Institutional investors, in particular, love Tidewater and own a whopping 84% of the company’s stock. As with most obscure sectors, following the “smart money” is a viable play for retail investors. TDW’s hefty institutional allocation fits the bill perfectly. At the same time, analysts assess the company as substantially underpriced. The $88.33 consensus fair value is 33% above current levels, meaning an upside.
The small-cap offshore oil stock was recently featured in a major “Small-Cap Value Fund” report, further boosting investor attention. Tidewater is the top holding within the fund, making up 7.7% of the weighted total. This kind of institutional emphasis on Tidewater can’t be understated, and dedicated attention can also benefit retail investors.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.