How Obama Instantly Created $2.2 Billion in Investor Wealth

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With a stroke of his pen -- and after a hellacious fight with the Congress -- President Obama brought massive change to the health-care industry.

He's doing the same with another industry today. The industry is different and he doesn't need Congressional approval. And the plan has already created $2.2 billion in wealth for investors.

So what's going on?

Would you be surprised if I told you it was politics?

Presidential power, some would argue, is cumulative. It builds. Winning presidents tend to keep on winning; losing presidents tend to keep on losing. After more than a year in office, the verdict on whether Mr. Obama will turn out to be a perpetual winner like FDR or a chronic loser like Jimmy Carter has yet to be determined.

Making such predictions is dinner-table sport inside the Beltway. Everyone has an opinion these days, but even the cagiest political operators should be loathe to make too bold a forecast. Today's supercharged political climate is full of surprises.

The fact is no one knows how the Obama administration ultimately will be judged.

But I can tell you what's coming next.
 
As you know,  health care was a cornerstone of the president's agenda. With the bill signed, Mr. Obama is wasting no time. He took a quick victory lap to Afghanistan to change the focus, came back and met with the French president for the same reason, and now he's ready for a new storyline.

He's got it. If you saw the news today you know what it is.

Mr. Obama is clearly moving on to another key element of vision: The environment.

We've all heard stories about how smart Mr. Obama is. And though the president is undoubtedly very intelligent -- and calmly disciplined -- both of those labels undersell him. In addition to his brain power and temperament, Mr. Obama is also very shrewd.

You see, though I would suspect he would agree that presidential power is cumulative, I think he also knows he can't just ram through another bill without any support from the other side of the aisle. That's not a purely political calculation, it's bowing to the unavoidable reality that Senate rules don't allow for another reconciliation process this year.

But with the midterm elections coming up, it's unlikely that the White House would railroad through more legislation even if the option were available. Mr. Obama and his advisers know that if you engage your enemy in the same way too long, he will adapt to your tactics. So the president is switching gears. That's why he's been talking about bipartisanship again, going so far as to quote the old Ronald Reagan line about "disagreeing agreeably." It's also why he's been supporting the construction of new nuclear power plants, a key Republican energy priority. The fact is Mr. Obama is priming the political pump.

And what's going to come through the pump next?

Crude.

The President is flip-flopping on a longstanding policy and opening up nearly 300 million acres -- or about 480,000 square miles -- for offshore oil exploration, some of it for the first time.

The action added at least $1.5 billion in market value to the offshore drilling industry's major players. President George W. Bush might have been an oilman -- and, to be fair, he did try to open up some areas for drilling -- but it's Barack Obama who today snapped his fingers and added nearly $1 billion in market cap to Transocean ( RIG ) , the leading offshore drilling company.

The president didn't stop with offshore drilling. To placate supporters who are bound to be aghast at the drilling, he threw environmentalists a bone and announced he will also increase the military's use of biofuels and add hybrid vehicles to the government's fleet. He made his announcement in front of a fighter jet that will run on biofuel -- not because that was the most important part of the announcement (it wasn't) but because he wanted a better visual on the news than offshore oil platforms, which would incense Greens.

Investors who own offshore drillers should hang on to them. And all growth-oriented investors should consider them: Offshore drillers are trading at very low valuations -- Noble Corp. ( NE ) sells for 6.5 times earnings; Transocean for 7.3. Diamond Offshore ( DO ) for 9.0. Part of that is uncertainty: No one knew what the Administration was going to do, especially after Mr. Obama said in his State of the Union address that some hard choices about drilling were going to have to be made. Now that those decisions have been made, all three of those industry-leading companies are steals. That's not just because of their long-term prospects but also because of their recent performance.

Transocean, for example, which operates 138 mobile offshore drilling rigs, grew its earnings from $0.22 a share in 2003 to an astonishing $12.48 last year, a gain of +5,572.7%. That's reflected in its historical earnings multiple, which is more than 40 times earnings for the past five years. That kind of earnings growth is possible again. The shares are up nearly +47% in the past year. Diamond Offshore has had similarly strong earnings growth, with an average price-to-earnings ratio (P/E) of more than 30 during the past five years.

Noble has had the most measured results, posting good steady growth, and should be able to regain its typical valuation of about 17 times earnings. Even before the president's landmark announcement today, Noble was worth $108 a share based on its current earnings. That's +157% upside even before new business juices earnings in the years to come.

Investors should and must go into the oil patch with their eyes wide open. First, oil investors have to be comfortable with volatility -- there isn't a "safe" place to stand anywhere in the industry, which is subject to every kind of risk actuaries calculate, and then some. That's not to say there aren't great petroleum investments -- in fact, no sector has ever achieved a better return on equity than the oil business -- but understanding the risk is the first step toward understanding whether any investment is suitable for your portfolio.

Second, even though the president reversed the moratorium instantaneously, the returns are going to take time. The intricate offshore survey work required to find suitable exploration sites will take months and years.

For risk-tolerant investors looking to take advantage of Mr. Obama's bold new energy direction, the offshore drilling space is a great place to seek growth. The president has added billions to this sector today. It's likely just the beginning.


Andy Obermueller
Editor: Government-Driven Investing

P.S. Just to be clear, this is NOT About Politics... it's about profits... big profits. And I can assure you, government action can do a LOT for your portfolio. Every move Washington makes helps some business somewhere -- and tracking those government actions and which companies will be affected is what I do. I determine where government action is going to create soaring stock prices and I present those ideas to the subscribers of my premium newsletter -- Government-Driven Investing -- with specific recommendations to profit. This is the first and only publication devoted exclusively to helping you profit from the never-ending stream of policies, regulations, and cash pouring out of Washington. For example, this idea alone could mean a +200%-plus return in the next 12 months...

Disclosure: Andy Obermueller does not own shares of any security mentioned in this article.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Stocks

Referenced Stocks: DO , NE , RIG

Andy Obermueller

Andy Obermueller

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