Slick Buys: Are Transocean and BP Good Deals After Oil Rig Disaster?

BP and Transocean have seen shares sink as the oil slick spreads. But analysts think the disaster makes the stocks a buy.
BP and Transocean have seen shares sink as the oil slick spreads. But analysts think the disaster makes the stocks a buy.

Transocean (RIG), which owned the oil rig that exploded in the Gulf of Mexico, last week lost its biggest investor when Marsico Capital Management dumped its entire 6.25% stake in the company. The investor had already begun selling some of its 20.96 million shares -- worth $1.74 billion – in Transocean earlier this year, citing diminished demand for rigs due to a glut of natural gas, but renowned fund manager Thomas Marsico told Bloomberg he turned up the volume on the sales after the blast that killed 11 workers.

You might expect the news, combined with the fact that the drill site has continued draining crude into the Gulf -- albeit at a reduced rate after a temporary fix by rig operator BP -- and concerns that hurricanes could soon spread the impact of the slick, would spell sell ratings from analysts. But analysts aren't ready to follow Marsico's example. In fact, they call Transocean a good deal.

Have Oil Rig Stocks Hit Sea Floor?

The Switzerland-based company has four "sell" ratings and 66 "strong buy" or "buy" ratings from the 100 analysts who cover the company. That's in spite of the fact that, of Marsico's top 10 holdings in its growth fund at the end of March, Transocean was one of the fund's worst performers in year-to-date returns, down 11%. The company finished down 2% Monday at $64.99 per share, just above its 52-week low of $64.76 per share.

"You see it all the time, something bad happens and the company's stock goes down as investors trade on fear," says CK Cooper and Co. analyst Lewis Kreps. "But while this is a terrible disaster, Transocean is still a good buy and is trading at book value." Transocean's liability in the accident is limited, and it has a good track-record, Kreps says.

Even BP (BP), which operated the rig and might have had more of a role in the disaster, is starting to gain investors' attention as a possible value buy after its stock has taken a beating. The oil giant is listed with five "sell" ratings from the 100 or so analysts who cover the company, and 20 "buy" ratings.

Doug Christopher of Crowell, Weedon & Co., is one of those who is bearish on BP. In a research report published Monday, he wrote that the rig catastrophe will cost billions of dollars. "The explosion is already becoming a hot button for energy and environmental politics," according to the report. "BP does not have insurance for the spill and, as headlines indicate, will be financially responsible for all the clean up."