With a stroke of his pen -- and after a hellacious fight with
the Congress -- President Obama brought massive change to the
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:
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?
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
, 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. (
sells for 6.5 times earnings; Transocean for 7.3.
Diamond Offshore (
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.
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
Disclosure: Andy Obermueller does not own shares of any security
mentioned in this article.
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