We recently published a list of 10 Oversold Energy Stocks To Buy Now. In this article, we are going to take a look at where Borr Drilling Limited’s (NYSE:BORR) stands against other oversold energy stocks to buy now.
Amrita Sen, Founder and Director of Research at Energy Aspects, a global data & intelligence provider for energy commodity and macro markets, on October 14, shared her insights on the current state of the energy market. According to Sen the prices of West Texas Intermediate (WTI) and ICE Brent have remained relatively on the lower side despite the ongoing geopolitical tensions in the Middle East, which is surprising because in the past, in a situation like this, oil would jump over $100 per barrel. Sen notes that the market is waiting to see how the situation in Iran and Israel pans out. Looking ahead to the future the market is expecting a surplus in 2025, which is driving the bearish sentiment.
However, Sen warns that the industry’s inventory levels are low, and if a significant event were to occur, such as an attack on Iranian energy infrastructure, there could be a lot of volatility ahead. She notes that many traders are trading via options, which could lead to significant price movements if they are forced to cover their positions in the futures market. This could lead to a rapid increase in prices, as traders scramble to cover their short positions, which could lead to a significant increase in prices.
Regarding the supply side, Sen notes that production in the United States has been flat this year, despite the expectation of 1-1.5 million barrels of growth. She attributes this to the fact that the industry is running out of acreage and that the biggest and mid-sized companies are unable to grow regardless of price. The Saudis have been warning other producers to stick to their allotted production limits and that if they don’t stick to their allotted production limits, they can produce a whole lot more oil. However, Sen notes that this is not a threat to flood the market, but rather a message to those who are not complying with their production limits. The Saudis want to ensure that everyone is working together to maintain a stable market, rather than trying to gain a competitive advantage. Sen acknowledges that the sanctions against Russia were never designed to lose Russian oil but it was designed to reduce the revenue going into Russia. The Russian oil is now redirected to China and India and that is why the market is jaded.
The current energy market dynamics are characterized by complex geopolitical tensions, supply chain constraints, and shifting demand. As the situation within the Middle East continues to unfold, markets can face significant volatility and price swings.
Our Methodology
To compile our list of the 10 oversold energy stocks to buy now, we used the Finviz and Yahoo stock screeners to find energy stocks that have fallen significantly on a YTD basis and have a forward P/E of less than 20, as of November 5. We then narrowed our choices to 10 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 smallcap and largecap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A modern offshore drilling vessel navigating the seas with equipment mounted on its decks.
Borr Drilling Limited (NYSE:BORR)
Number of Hedge Fund Investors: 11
Forward P/E Ratio as of November 5: 6.16
YTD Performance as of November 5: -43.14%
Borr Drilling Limited (NYSE:BORR) is a Norwegian offshore drilling contractor, operating a fleet of jack-up rigs. The company serves oil and gas exploration firms worldwide, especially in shallow-water drilling.
Borr Drilling Limited’s (NYSE:BORR) growth prospects are driven by several factors, including a strong order backlog, increasing day rates, and a tight supply-demand scenario for modern jack-up rigs. The company’s order backlog of $1.76 billion provides clear revenue and cash flow visibility, with 92% contract coverage for 2024 and 73% coverage for 2025.
The average day rate for new contracts is expected to trend higher, with a recent order intake at an average day rate of $184,000. Additionally, the company’s modern fleet and tight supply-demand scenario for jack-up rigs position it for EBITDA margin expansion and cash flow growth.
Borr Drilling Limited (NYSE:BORR) is focusing on offshore shallow-water drilling in the Middle East, which has an attractive breakeven point even at lower oil prices. The company’s CEO, Bruno Morand, expects incremental demand to continue outpacing potential supply growth, leading to higher day rates and increased revenue. The company is also targeting to reduce leverage to 2x in the medium term and achieve a long-term steady-state leverage of 1.5x.
Borr Drilling Limited (NYSE:BORR) presents a compelling investment opportunity with a strong order backlog, increasing day rates, and a tight supply-demand scenario for modern jack-up rigs.
Overall, BORR ranks 8th on our list of oversold energy stocks to buy now. While we acknowledge the potential of BORR to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BORR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.