Last week, U.S. stock markets continued their winning ways, with the Dow Jones up 0.51% and the S&P 500 ending the week 0.87% higher. The MCSI Emerging Markets Index (EEM), however, was down 0.64%
Your Bull Market Alert portfolio had a much stronger week. Your bet on the U.S. housing recovery with Standard Pacific Corp. (SPF) rose yet another 4.83%. Ross Stores Inc. (ROST) jumped 3.44%, as retail sales improved. Your bet on the 3D printing revolution, 3D Systems Corp. (DDD), continued its winning ways, rising 2.05%
This week’s Bull Market Alert pick, Seadrill Limited (SDRL), is a bet on the red-hot offshore oil drilling industry.
Today, more than 82% of offshore drilling vessels worldwide are currently in use and are servicing over 230 projects. And that number is growing by leaps and bounds.
Seadrill is already the largest offshore drilling company in the world by market cap and boasts the world’s second-largest fleet of ultra-deepwater rigs. Seadrill also has one of the most modern fleets in the world, a factor which has proven to be a huge competitive advantage for the company. After the Deepwater Horizon oil spill disaster, customers want new, high-specification rigs outfitted with all of the latest safety features.
Seadrill makes its money by renting out its rigs on a daily rate basis. Thanks to a combination of strong demand and a rising oil price, these daily rates have been skyrocketing. The average day rate of a currently contracted-out semi-tender drilling rig back last year was $167,000. The average market day rate for one of these rigs hit just over $200,000 by the spring of this year. That means that once current rigs come off contract, Seadrill’s revenues will soar. The potential for ultra-deepwater rigs is even more lucrative. Seadrill said earlier this year it expected day rates for ultra-deepwater rigs to rise above $600,000, and that the market was seeing rates up to $750,000 plus per day.
That process has already started. Late July, Seadrill inked a stunning $4 billion agreement to lease three offshore rigs in the Gulf of Mexico. According to Powerhedge, the contract works out to $576,800 per rig per day over six-plus years. The deal also increases SDRL’s contract revenue backlog by nearly a third.
No wonder Chairman John Fredriksen just raised his stake in Seadrill by exercising a put option to buy back up to 6 million shares of Seadrill from Goldman Sachs — a close to $250 million bet. Morgan Stanley currently has a price target on Seadrill of $51.00 — 23.6% above Friday’s close.
So buy Seadrill Limited (SDRL) at market today, and place your stop at $35.00. If you want to play the options for potentially even bigger gains from the appreciation of its stock price, I recommend the January 2013 $44.65 call options (SDRL130119C00044650). Seadrill is scheduled to release its second quarter 2012 results on Monday, Aug. 27, so make sure you get in before then.
Portfolio Update
Bank of Ireland (IRE) was flat last week. IRE issued an updated prospectus for its Bank of Ireland Mortgage Bank Covered Bond Programme last Friday. Upon review it, Moody’s determined no negative rating impact and did not change the current rating of the covered bond notes. This is yet another “greenshoot” in IRE’s recovery. IRE is a HOLD.
National Bank of Greece SA (NBG) closed the week up 1.23%. Greek Prime Minister Antonis Samaras is scheduled to meet Germany’s Angela Merkel this Friday, Aug. 24. A major topic of discussion will be Merkel’s consideration for easing the terms of the Greek bailout. NBG is a BUY.
Novo Nordisk A/S (NVO) was flat last week. NVO hit a new 52-week high last week after reporting earnings the week prior. Now that analysts have had some time to digest the recent earnings report, 28 analysts collectively rank NVO with an “Overweight” rating. NVO is a BUY.
3D Systems Corp. (DDD) added 2.05% over the past five trading days. 3D Systems continued its winning ways last week, hitting a new 52-week high at $41.75 — testing it twice. This stock’s uncanny consistency in respecting the 20-day and 50-day moving averages, since Jan. 2011, is an example of performance that very few stocks can deliver. DDD is a BUY.
Standard Pacific Corp. (SPF) jumped another 4.83%. Standard Pacific continued its move back towards its recent $6.66 all-time high — ending the week at $6.51. Expect some volatility over the coming weeks as traders attempt to push the stock price up beyond this line in the sand. SPF is a BUY.
Ross Stores Inc. (ROST) gained 3.44% over the past week. ROST reported earnings last Thursday revealing a $0.81/share gain vs. a Capital IQ consensus of $0.80/share. Revenues slightly beat as well, coming in at $2.34 billion vs. an estimated $2.33 billion. Year-over-year same-store comparable sales were up 7% — beating last year’s 5% figure. Oppenheimer maintained an “Outperform” rating and raised its price target to $72. ROST will pay a $0.14 dividend on Aug. 29. ROST is a BUY.
ProShares Ultra Nasdaq Biotechnology (BIB) rose 1.42%. This leveraged bet on biotech has skyrocketed nearly 55% this year alone. If more traders get wind of the performance of this biotech sector fund “hiding in plain sight,” things could really get interesting. BIB is a BUY.
American Capital Agency Corp. (AGNC) held its ground last week, dipping just 0.32%. AGNC’s Aug. 7 debacle was triggered mainly by a downgrade issued by TheStreet.com — founded by “stock-picking madman” Jim Cramer. Yet when asked by a viewer, during a recent “Lightning Round” segment of Cramer’s daily show “Mad Money”, whether to sell or hold AGNC, Cramer himself said the stock was a “winner”, he loved the dividend, and rated it a “Buy.” Go figure. AGNC will likely find support at the $33.00 or $32.00 level. Falling below its 50-day moving average, AGNC is a HOLD for now.
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