The offshore drilling business has had its ups and downs as it returns to a more normal state nearly two years after the Gulf of Mexico oil spill.

Some rig owners such as Transocean (NYS: RIG) have struggled with new control equipment recertification requirements and higher standards for equipment. And the trend of offshore production moving further into deepwater has hurt operators such as Hercules Offshore (NAS: HERO) , which have focused rigs on shallow water.

But the industry appears to be on an upswing as more ultra deepwater rigs are completed and drilling picks up off Angola and Brazil. With some of these stocks trading at relatively low multiples and paying high dividend yields, it might be the right time to pick up some drilling stocks.

Company

Stock Price

EPS (TTM)

EPS (2012 est.)

Dividend Yield

Transocean $39.28 $1.98 $3.12 8.0%
Seadrill (NYS: SDRL) $34.33 $2.96 $3.20 8.8%
Hercules Offshore $4.35 ($0.38) ($0.40) N/A
Noble (NYS: NE) $30.29 $1.20 $3.92 1.7%

Source: Yahoo! Finance.

As you can see, Hercules Offshore has struggled, and is expected to continue to struggle, with shallow water drilling. Meanwhile, deepwater-focused Transocean and Seadrill are highly profitable with a high dividend yield and are expected to grow as ultra-deepwater drilling grows.

Noble is quickly adding ultra-deepwater rigs to its fleet with eight new, dynamically positioned drill ships being added. Revenue grew 20% in the last quarter and earnings more than doubled to $0.53 per share as utilization and day rates rose, so the company may soon provide a better value than Transocean and Seadrill.

But my top pick is Seadrill, which has a lot of exposure to ultra-deepwater with 24 rigs in operation and another five under construction. The company only had 44 rigs in operation during the third quarter, so this is a more leveraged bet on ultra-deepwater drilling than other operators. The company's dividend yield of 8.8% and history-beating earnings estimates make this a value I can't overlook.

I have an outperform rating on Seadrill on My CAPS page. You can check out the rest of my picks here.

Interested in reading more about oil drillers? Add them to My Watchlist to find all of our Foolish analysis on each stock.

Want a stock idea we think will outperform the market? Our analysts have selected a stock that they believe is poised for tremendous growth in 2012. Find out which company in our new free report: "The Motley Fool's Top Stock for 2012." Thousands have already requested access and it'll only be available for a limited time. Simply click here -- it's free."

At the time this article was published Fool contributor Travis Hoium manages an account that owns shares of Seadrill. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.The Motley Fool owns shares of Noble and Transocean. Motley Fool newsletter services have recommended buying shares of Hercules Offshore. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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