Bull Case for Transocean Stock: 100% Upside Could Be Within Reach
There are many investors out in the market looking for the next best set of opportunities so that they can start 2025 off on a strong note, leaving them with the peace of mind and available capital to pursue some of the more aggressive plays in the market later on. Today, the dots will be connected between what Goldman Sachs analysts said in their 2025 macro outlook report and potentially the best play in the energy sector tracked by the Energy Select Sector SPDR Fund (NYSEARCA: XLE).
As more market participants realize that oil prices today offer some of the best—if not the best—upside potentials in the commodity space, investors need to start drilling down into the sector and figure out which industry makes the most sense here. Speaking of drilling, the most upside seems to be centered on oil drilling stocks, which can be tracked through the VanEck Oil Services ETF (NYSEARCA: OIH).
However, there is one specific drilling services provider with a broader footprint in international markets and one that already shows demand building up into 2025. Today's Investors will have access to the near 100% upside placed on Transocean Ltd. shares (NYSE: RIG) for the coming months, a stock worth looking at for those prepared to see their wealth compound this year.
Global Trends Point to More Oil Demand
Before investors get into the nitty-gritty details of Transocean and what justifies such an aggressive upside, they must first understand what is happening behind the scenes in the world of oil. Looking at demand trends, there isn’t much of it right now, but data shows an entirely different world for the coming quarter.
The two largest economies in the world, the United States and China are now turning their business cycles into one of the main drivers for oil prices in the coming months. This is why Goldman Sachs, in its report, decided to focus on manufacturing stocks and oil for its recommendations.
As the manufacturing PMI report showed an unexpected surge in new orders for December 2024, it could be assumed that a lot of industries expect to see higher export demand in 2025. Then, in China, the Caixin manufacturing PMI has just reported its third-consecutive monthly expansion, not to mention the above-expectation import and export numbers.
Given that China is roughly 40% of global oil demand, traders are sure to get ready for the coming surge. No wonder Warren Buffett decided to buy up to 29% of Occidental Petroleum Co. (NYSE: OXY) in the past few quarters, reiterating the current view for the energy sector falling on the bullish side.
Hedge funds have also decided to start piling up some oil futures positions, but here’s why Transocean stock is the best pick. Being in the drilling services space, this company is set up to get paid before anyone else when oil prices surge and demand for production comes back online, and that’s where the upside potential comes from.
Breaking Down the Deal: Transocean Stock’s Upside Potential
As of today, Transocean stock trades at a low 59% of its 52-week high, meaning the potential downside is relatively priced in at the moment, leaving investors with a massively advantageous risk-to-reward ratio to dominate their portfolio in 2025. Now, here are some of the fundamental factors that will play into the stock’s future.
As of December 2024, Transocean management announced a new ultra-deepwater drillship contract worth up to $111 million. This new addition means two things for investors; first and foremost, it signals that demand is coming back and points to customers seeking to prepare themselves before the surge in oil prices.
Second, it adds to the already significant $9.3 billion backlog, which, according to the latest quarterly earnings presentation, will turn into revenue within the next three years. Now, considering that Transocean is only a $3.5 billion company, this backlog will turn the company’s future sales into a massive discount in terms of a price-to-sales (P/S) ratio.
This is also why Wall Street analysts are willing to forecast up to $0.02 in earnings per share (EPS) 12 months from now. While that may not seem much, it is a significant boost from today’s net loss of $0.04 per share. More than that, investors need to remember that the backlog assumptions are probably not built into these forecasts.
Other analysts might have priced this potential in, however, such as those from Susquehanna. These analysts decided to reiterate their positive rating on the stock, this time placing a $6.50 a share price target on Transocean stock, calling for as much as 63.3% upside from where the stock trades today.
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