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Dear Mr. Berko:

Dear G.T.:

If you knew Jerry Yang or any of the members of the Yahoo! board of directors, you never would have owned the stock. I’m surprised that angry shareholders have yet to sue Yang and his toady board members after the stock price tumbled.

I like Diamond Offshore Drilling Inc., Noble Corp. and Pride International Inc. But I’d like you to peek at a company called Transocean Ltd. (RIG-$52.01), the planet’s largest offshore drilling contractor. RIG works in all major offshore regions in the world, including West Africa, Norway, the North Sea, the Gulf of Mexico, United Kingdom, Brazil, the Middle East, Canada, etc. RIG is one of the few contractors with the capability and technology to pursue deep-water/harsh-environment drilling projects – amid huge waves, heavy winds and freezing temperatures.

Transocean has 143 oil rigs rented to major energy firms all over the globe at prices between $350,000 and $650,000 per day.

RIG has a $43 billion backlog of signed deals, which represents about three years of revenues. Recent declines in oil prices haven’t affected contract rates, because virtually every one of its 143 rigs is profitable at $58 a barrel. Most of RIG’s clients are major oil firms, so most contracts represent development of known reserves.

Meanwhile, barriers to entry in this very costly business are extremely high because all available rigs are in use, and it takes about four years to build a new one. Demand for deep-water rigs continues to exceed supply, and demand for rigs capable of ultradeep-water/harsh-environment performance is increasing almost geometrically. Though oil prices have fallen below $40 a barrel, most observers know those prices are temporary because of America’s natural profligacy.

RIG revenues in 2008 were $12 billion and are expected to come in at $15 billion in 2009. Argus, a highly respected investment research firm, expects 2008 per-share earnings to come in at $14.50 and believes 2009 earnings will be $15.38. Value Line puts 2008 earnings at $14.35 and thinks RIG can post earnings of $16.50 in 2009.

Those are darn good numbers. So good, in fact, that Morningstar has a three-year share price target between $135 and $188. Argus believes RIG could be $102 in the next 18 to 24 months. Credit Suisse has an 18-month target price of $118.

RIG expects to have a $44-per-share cash flow in 2009, enjoys a 39 percent net profit margin, a 36 percent return on equity and trades at well under four times earnings. Many investors purchased RIG shares in June 2008 when the stock was trading in the $160s. I couldn’t recommend RIG when it was trading above $100. But because market volatility has knocked more than 100 points off its high price, I’m comfortable recommending 200 shares in the aggressive growth portion of your portfolio.

I would not be surprised if the company initiated a good dividend or a share buyback program.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. © Copley News Service