There's something to be said for looking more deeply (no pun intended) into offshore oil drillers. While the overall onshore rig count in the U.S. continued to decline for the ninth straight month in August to the lowest level since January 2018, the offshore count remained constant in the U.S. and worldwide, just as it has done throughout the year. If you're looking for high market ratios and earnings, you're looking in the wrong spot, we'll definitely say that.
Stocks in the drilling space have languished in recent years, including Noble Corp. (NYSE:NE).
Five years ago, shares of NE were over $30 each. About two weeks ago, shares touched 99 cents. The stock has rebounded nicely from the low (something we often refer to as a "$1 boogie"), including gaining on Wednesday through Friday last week. On Friday, NE gained another 8.8% to close at $1.60.
Friday's move pushed NE through a resistance at $1.50, which was a low from June. We see some more resistance at the 50 day moving average (DMA) at $1.70 and some more around $1.90, but we think we can get a little more out of NE than that.
Shares have repeatedly stumbled around $2.14, hitting it as resistance about five times in the last three months. We're not trying to get too brave here, playing it smart with a price target at the resistance at $2.14.
When it comes to support, we really want to see $1.50 hold, but will be a little tolerant of some market volatility. A little, not a lot. There is more support at $1.40 and we'll sell our position with a stop/loss set at $1.39 if NE heads back south.
Oil drillers are definitely trading at a deep discount compared to other energy players and, certainly, from where they were in recent years. There's still risk involved with negativity surrounding a global oil supply glut, but the offshore space from a 30,000-foot view is particularly compelling.
Taking position at $1.60 when markets re-open on Tuesday after taking Monday off for Labor Day and trading by the rules set forth implies upside potential of 33.8% to $2.14 and a downside risk of 13.1% to $1.39.
