Post by kbair on Apr 23, 2024 21:09:00 GMT -5
Re: "risk of financial insolvency", I don't believe the stock price is affected
by such a risk, given current industry trends, but I do believe that people are
aware of Transocean's greater vulnerability than it's previously BK re-organized
competition should the current up-cycle be interrupted. Clearly, another covid-
like event within the next few years, before Transocean has a chance to pay down
debt and lock in long-term, high-dayrate contracts on more of it's fleet,
would have a high probability of pushing the company toward bankruptcy. People
are very aware of the risk posed by this much debt should the up cycle end. I
just happen to see a pretty low probability of that happening.
I don't own Transocean to the exclusion of it's competitors because it's safer
than them, it isn't at all safer. I own it because it has the most upside, due
to it's depressed stock price owing from high debt, still-negative EPS and no
reactivations to date. Transocean's competitors are further up the ladder of
Templeton's mantra while Transocean is still an earlier-stage, turnaround
candidate.
To that end, an example. Back following the severe recession of 2009, I bought
Bank of America stock for $6. Subsequent to that, Warren Buffett bought it
in a big way, preferreds at a time when the common stock was $8. After Buffett
bought, it jumped over $10 but, as usual when Buffett buys, it settled back down
to $8 again and I backed up the truck again. Why stocks tend to settle back down
after a Buffett inspired spike, is a story in and of itself which I've previously talked
about on this forum.
I bought BAC for the same reason Buffett did. It was beaten down, it was lagging
it's competitors in terms of technology and replacing brick & Mortar with more online
services, it's price-to-book ratio was in the 30s, and it's newer CEO was hell-bent
to catch up with it's competitors. Like Transocean in mid-2000, it was a deeply
contrarian, turn-around play.
At that time, people were very critical of BAC, just as they are today when bringing
up Transocean's debt, negative EPS, and lack of reactivations. With BAC back then,
as with Transocean today, those conversations are music to my ears, because it tells
me there's a lot of people who are aware of Transocean, but not yet big investors in
Transocean yet. Essentially, like BAC, I want to own Transocean BEFORE they start
making money (albeit cash flow and EBITDA are currently pretty good), paying down
debt and reactivating stacked rigs because once those things start happening in
earnest, the stock won't be under $6 anymore. I essentially gauge where I think
it'll be with those things by 2026, and let the stock do what it'll do in response.
Sometimes I'm wrong, we all are. Another Covid could hit and Transocean would plummet
below $1 and file bankruptcy. That could happen... it's the risk we take and why we
contrarians diversify among many turn-around candidates, and even hedges. I've been
buying significant amounts of gold recently for the first time ever (I hate gold since
it produces no income or production, but with the national debt past $34 trillion and
rapidly approaching $35 trillion, this isn't our fathers' country anymore).
Finally, speaking of contrarian, turn-around plays, I shared with Blitz a new position
of mine this winter. I'd be happy to share it with this forum if there's interest.
It is not something to enter into lightly, because as you pointed out, there are outside influences that could crash this house of cards. You have to have the balls to weather the ups and downs, AND be able afford to risk the capital to see if it pays off. I don’t have physical balls, and I’m not rich, but I won’t starve if this goes south. It will hurt, but no pain no gain.
I have traded this stock’s volatility for the last 5 years and made a good bit of money…..……which I used to buy some other “game changers” that did not pay off. (heavy sigh) But the last 3 years I have been long and accumulating RIG whenever I can. May have just bought my last set of shares today at 5.93. Not sure it will go much below that from here. 🤞. But if it does I won’t panic.
like you BJ, I am a contrarian. Will get out well before this hits max momentum. I am getting to the age where this may be my last big play…..but just in case , I would LOVE to hear of your new position….😉