I agree that it's just a question of trying to wait out the trashing of these stocks.
This is "blood in the street" for PGN right now, all these factors have weighed against it:
1. Incredibly bad sentiment in which older rigs are thought of as trash.
2. Extreme poor sentiment in the sector....constant non-stop downgrades for 8 months.
3. Each time a new analyst downgrades, price collapses yet again with no consideration of what bad news is already factored into the price.
4. Short sellers heyday as all rallies are taken as fresh opportunities to short.
5. Technicals terrible so no chartists will even touch these stocks.
6. Forced selling in PGN by indexers.
7. Selling by disillusioned holders.
8. Selling by investors who just want to be in NE as a high spec rig play.
9. Confusion and uncertainty relative to various elements of the spinoff.
I would not be surprised to see a filing 3-6 months from now that some large value-oriented/dividend-oriented person or institution has taken a significant percentage position in PGN. I'm not going to candy coat this, I feel pretty beaten up by what has occured in both NE and PGN, but I've seen this movie before, and it always ended with my kicking myself for undue worrying and not being more patient on the upswing.
NE is looking good technically. Not so much for a momentum rally, but more from the point of view of "the bottom is in". It's been doing solid base building for 4 months. Solid in that it has been in a tight range meaning that whenever it gets sold off, there are buyers at the low end of the range. Also solid in that the beginning of the selloff in late January had 3 weeks of high weekly volume, and since then volume has tapered off. That tells me that you had 3 weeks in which the big players and institutions dumped the stock....the big guys who wanted to get out, got out in a high volume persistent selling climax....probably no one left to sell unless fundamentals were really turning south, and that's just not the case at all at this time. Lastly, RSI on the weekly charts is confirming the lack of selling pressure and the likelihood that a bottom is in. I think the odds are good that shallower selloffs get bought and that the chart continues to make a pattern of higher lows with a test of highs in the range close to 33.
The GS commentary is a worst case commentary relative to idled rigs not getting contracts, and worsening conditions in general for the offshore drillers. This worst case scenario had a decent chance of playing out back a few months ago, but you can see by the rallies in NE, ESV, RIG, SDRL, etc. that investors are starting to feel that the worst case picture is probably not going to play out. This is due to oil prices staying high, idled rigs finding work (yes, at lower prices), and newbuilds getting very good prices (ESV just signed a newbuild at above peak dayrates). It's not that there aren't challenges, it's just that as is almost always the case in investing....."the sky is falling" scenario doesn't come true and ends up being a buying opportunity for those willing to take a chance that there will be better days. Disclosure, I had 2,500 (very small position for me) shares before this bad news hit, and just doubled that now at $4.15. Looking to hold this thinking I can get 5 for it at some point in the next year.
Seadrill just signed an ultradeepwater drillship @ 600k per day on a 5 year contract. That's right up there with the highest dayrates. This is just one of many many data points over the past month that show that the pessimism in the sector was way overdone. Meantime at the other end of the spectrum the older rigs are getting work at reduced rates, but the top rates for the newbuilds are balancing out the picture.
I did end up talking with someone who works for APC. He said that APC takes a two-pronged approach, and that land drilling and deepwater drilling both have their place and always will....they both have a great ROI, and neither one is clearly better. Depends on the particular situation. He thought that the dayrates for the deepwater guys really depends on the supply demand equation over the near term. He really didn't give much credence to land drilling hurting the deepwater guys or pressuring dayrates very much.
I don't know the answer to whether it is correct to buy PGN at these prices of not. I can tell you that I've bought about 4k shares for an average price below 10, in addition to another 1k that I got from the spinoff. I sold shares I had in HERO for a loss and put that money into PGN because if I'm going to own older rigs I think PGN at these prices represents better value than HERO.
I think there is a panic going on right now toward older rigs. The investment community is basically assuming they're all trash. The reality is that older rigs have always been part of the mix and when demand is high, newer high spec rigs may be the rigs of choice, but the older ones go to work at good rates too. I bought PGN because I do think I'm going to get a safe 10% annual yield on it, and I do expect a more reasoned approach to older rigs to come into play. I bought my shares in an account that I don't trade actively and my plan is to hold PGN until I've made 20% either through dividends and price remaining stable, or price appreciation when a more reasoned approach returns.
No guarantees, of course, but that's my plan and I think it will work out well.
A 3 year Treasury currently yields under 1%, and if interest rates go up (very probable given Fed planned action), you'll be losing value in it as you get your low rate of return.
With NE stock price already destroyed,(in low range of past 5 years) and the supposed weakness in contract pricing expected to last anywhere from 6 months to 18 months, it seems to me that getting a 5% return while you wait for the stock to rebound at least 10% (let's be super conservative) at some point over the next 3 years, buying now seems like a no-brainer. Not only that, but you stand a decent chance of having your cake and eating it too: 5% dividend increases and stock rebounds to 40 at some point over that 3 year period....you could get a total return of 40%+ if things go even moderately right.
Volume was significantly heavier than usual with a rally of over 3%, that's some decent conviction....some big player/players were getting in today and were not shy about buying at higher prices as the volume was skewed higher toward the close.
Did you guys watch the trading today....reminds me of the Tom Petty and the Heartbreakers song "I won't back down". In a rough down market, the buyers just wouldn't back down....they stood their ground just like Tom Petty would've wanted them to. Thankfully the theme wasn't another Tom Petty song: "Free Fallin".
I think it will take 2 quarters of earnings reports from PGN to make institutions comfortable with buying PGN. If for no other reason than to rationalize their purchases to their bosses by showing due diligence. I think by the time they feel comfortable buying, the stock price will be something like 20% higher. Anyway, I'm hoping that the downside risk has mostly already happened and that the upside (with dividends factored in) is really pretty dramatic.
Just in case we're still in a trading range and this is above the midpoint of that range.
If we dip, over the next week I'll probably replace what I sold in NE with put sales.
With ESV, I want to buy stock to be in for the dividend.
Glad it worked out for you bits....nice trade. I also continued to buy when it dropped below 47 yesterday....just felt like it was too overdone. I had planned to keep some for a run closed to 50, but just kept selling as it rose today until I had none left.
I still have NE and HERO. Looks like NE is heading up to test April Fool's Day highs close to 33 as I suggested it might....who knows it could form a cup there with a handle.....very bullish if it does that, esp. if the handle has low volume and low volatility and lasts for about a week. It seems like the deepwater guys are getting discovered today....doesn't surprise me given oil prices and strength in oil service sector which is setting new 52 week highs everyday....at some point they are going to go after the dogs of the sector.
Don't usually participate in this one.....usually stick to NE and ESV although I do have a small amount of HERO. Buying DO down here is a read on what I think happened recently with the stock price. It had a major short squeeze in April that got it way out of line with its peers....now it has gotten crushed as the short squeeze finished playing out, and some bad news got the stock knocked back down. I think 47 here in DO will end up being close to a bottom, and it has been subject to short squeezes for many years. Looking to hold it for a test back up close to 50 over the next few weeks.
NE Q2 quick look ($31.92 – A) – Positive as NE reports recurring 93c (ex. -2c of spin-off costs) annihilating our/Street estimates of 55c/65c. Beat chiefly driven by better contract drilling revenues at ~$1.2B (vs. our ~$1.1B estimate) as utilization for both semisubmersibles (+9% utilization vs. TPH) and drillships (+5%) beat our expectations while dayrates were in-line. Furthering the beat was better than expected contract drilling expenses of $577mm vs. guidance of $580-595mm (we assumed mid-point). Given spin-off of standard assets will be completed tomorrow (Aug. 1st), market will soon be forced to realize New Noble’s high-spec fleet.
The way it is trading today makes me think a bottom may be in for it.
Way to overdone, but not surprising.
The pessimism is thick in this sector, but that recent DB downgrade that came in 6 months after others were saying the same thing has me thinking that pessimism may have peaked.
The reality is that the dire conditions predicted by the pessimists have not come true at all, and NE sounded optimistic on their CC about business going forward.
I'm mainly worried about a general market selloff as we've had 51/2 years of market rally with worldwide economic conditions not very good and the Fed trying to dial back stimulus.
As I mentioned in a prior post, you could see the shorts doing this....every time NE got a little head of steam, it would get pounded down with the 5 minute bars showing a strong volume spike, typical short action. I believe that some large hedge funds are behind this after reading the extremely negative analyst views from a few months ago. Every piece of evidence has disproved the "sky is falling" scenario. Yesterday, yet another fleet status report (RDC) showed that rig contracts are being signed and renewed. In the case of RDC, three of them. The negative analysts assumed that renewals would not happen....every single fleet status report over the last 2 months has disproved this negative assumption. The commentary from all the deepwater guys has acknowledged the slow patch (SDRL today), and if they are right, and it is just a slow patch, these shorts are going to get creamed eventually because the stock prices (below book value in many cases) already reflect the worst case scenario.
Almost got to the 31 number, but there seems to be an aggressive shorter in NE who pounds it down. It's lagging DO, ESV, RIG and SDRL by a good amount. I say a shorter just from watching the trading. I think it is being singled out for shorting because DO has squeezes, ESV is more peppy and responds to up markets, RIG's got some big marquis activists pushing for higher divi's etc, and SDRL people like because of the age of their fleet, so they pick on NE.
Re: "Hey look, Chute has a rooster!"
LOL! There's probably a good dirty joke in there somewhere, but I think I'll let it pass.
don't know, pg, i have sold about 1/2 and just going to keep the other half because it seems to have a head of steam and even acts well on bad days. HERO by the way, had a bad fleet status report but seems like specific to a certain situation with them in Angola. I added some down here, but probably going to be a longer term slog to make money...don't really have much dollar wise so not tying up too much money....4k shares total right now. good luck! glad to see NE rallying....sold all my ESV too soon over this week.
take care, pg ♥ (If you haven't sold any NE, I'd sell some just to book some profits, but that's me...I trade that way and usually sell too early)
Some of the negativity in the deepwater drillers is based on the assumption that some people are making that because of increased land drilling activity (shale oil, etc.), that customers of the deepwater guys will not pay the peak dayrates because they are allocating more money to drilling on land.
Do any posters have some in-depth knowledge about this?
This certainly does not seem to be true for the newbuilds which are getting top dollar and that's in brand new negotiations.