My first pick!

After writing my "If I was a Portfolio Manager" post on my other blog here, I decided to create another blog specifically for securities I would select if I were actually a portfolio manager.

Well, I am not going to create an entire portfolio, as I believe that would useless to most individual traders and investors. (Not to mention a little too complex!)

But I can do this:

I will provide stock name, symbol, sector, price at the end of the prior day (unless something significant happens on the following trading day) and what price target I think it should have based on forward guidance provided by a number of different analysts. I'll also use a basic CAPM equation to see if the possible movement of the price in either direction is worth the return. For the CAPM equation, I will use the prior days 10 year treasury bill rate.

First post, first Stock:

Seadrill. SDRL, drilling and exploration.

Currently selling at $46.95.

Let's use Yahoo Finance which actually uses information from Thomson Reuters to get a average price target.

Yahoo Medium Price Target: $48.
 http://finance.yahoo.com/q/ao?s=SDRL

So if you're looking to buy SDRL for it's possible ~$1.05 appreciation, the CAPM equation says:

2.65%  +  1.65( 7.46% -2.65%): 10.59%

So you're $1.05 (2.24%) potential increase in stock appreciation not exactly worth the risk or opportunity cost for a quick trade. However, that's moot if you're looking for a good long-term buy, and if that's your goal, this is your stock!

At a $46.95 price, SDRL has a 7.75% dividend. You combine that with the fact that this a relatively defensive industry which is based in stable and monetarily independent Norway, give you a safe long term stock despite its high Beta. I'd even recommend buying dips well below the $44 level as long as there are no indications of huge drilling accident (they happen!) or a dividend cut.


The 7.46% comes from the average 10 year return for the S&P 500.
 https://personal.vanguard.com/us/funds/tools/benchmarkreturns

The 2.64% comes from the ending of today's (11/6/2013) 10-year treasury yield.
http://www.marketwatch.com/investing/bond/10_year



Generally speaking, I will always have an affinity for good dividend paying stocks. With the high levels of seniors getting ready to retire and live on fixed income combined absolutely dismal yields in traditional "low-risk" fixed income products like treasuries, I see these stocks getting squeezed for their yields.

Seadrill Limited (Seadrill) an offshore drilling contractor providing worldwide offshore drilling services to the oil and gas industry. Its primary business is the ownership and operation of jack-up rigs, tender rigs, semi-submersible rigs and drillships for operations in shallow, mid and deepwater areas, and in benign and harsh environments. It operates in three segments: floaters (world-wide), jack-up rigs (world-wide) and tender rigs (mainly in south-east Asia and Africa). Seadrill owns and operates a fleet of 59 offshore drilling units, which consist of 13 semi-submersible rigs, nine drillships, 21 jack-up rigs and 16 tender rigs, including 16 units, which is under construction, which consists of five drillships, one semi-submersible rig, five jack-up rigs and five tender rigs. On November 28, 2012, the Company acquired 65.95% interest in Asia Offshore Drilling Limited. In May 2013, the Company sold T-15 tender rig to Seadrill Partners LLC.

 Update! 11/9/2013

This article on seeking Alpha is a little more skeptical on the long term prospects for SDRL's dividends. Might be worth taking a look at.

http://seekingalpha.com/article/1825582-seadrills-dividend-does-not-look-sustainable?source=email_rt_article_readmore