Seadrill Ltd (SDRL), Transocean LTD (RIG): Why $100 Crude Could Send This 8.4% Yielder Soaring

Despite the markets’ push to record levels, energy stocks have been locked into a bearish slump for the past two years.

With natural gas plummeting to an all-time low in the summer of 2012 and crude contained by slow economic growth, energy stocks have been big underperformers. That shows up in the sector’s 3% gain in the past five years, 12% gain in the past three and just 7% gain in 2013 against the S&P 500’s 20%.

But with natural gas trading well above its multi-year low and crude recently breaking above $100, the stage could be set for a rebound.

One of my favorite ways to cash in on the energy trade is with offshore drillers. I’m bullish on the offshore drilling industry because that’s where most of the new oil is being found. In the past decade, more than 40% of all newly discovered oil was found in ultra-deep water, bypassing both onshore and near-shore discoveries. Big finds in the Gulf of Mexico and off the coasts of Brazil and Africa will also continue to drive demand for offshore drilling services.

There are plenty of great offshore drillers to choose from, including Transocean LTD (NYSE:RIG), Diamond Offshore Drilling Inc (NYSE:DO) and Noble Energy, Inc. (NYSE:NBL). But my favorite pick from the group is Seadrill Ltd (NYSE:SDRL), one of the largest offshore drillers in the world with a fleet of 66 drill ships and a market cap of $20 billion. With crude surging above $100, Seadrill Ltd (NYSE:SDRL) is up 20% in the past two months. Take a look:

But looking forward, Seadrill Ltd (NYSE:SDRL) stands out from its peers because of its unique combination of growth, value and income.

As one of the largest offshore drillers in the world, Seadrill Ltd (NYSE:SDRL) operates in the shallow, mid- and deepwater markets, providing the company with a diversified revenue stream. But the ultra-deepwater market is the fastest growing, and that’s where Seadrill Ltd (NYSE:SDRL) is making targeted investments to capitalize on the bullish trend.

On July 15, Seadrill Ltd (NYSE:SDRL) announced it had placed an order for four new ultra-deepwater drilling rigs scheduled for delivery in 2015. Seadrill capitalized on weakness in the Asian shipbuilding market, negotiating a unit cost of less than $600 million. Each new rig is projected to produce $100 million a year in earnings before interest, taxes, depreciation and amortization (EBITDA) and expected to add 10% to total EBITDA by 2016.