Transocean LTD (RIG), Hess Corp. (HES), Oil States International, Inc. (OIS): Is It Too Late to Get in on These Energy Names?

Transocean LTD (NYSE:RIG)Lately the sector activist investors have been targeting the most is the oil patch. With sky-high oil prices, there’s no reason why an oil stock should be under-performing the overall market. We have the big money hedge fund activists to thank for forcing change at these companies. Carl Icahn has targeted Transocean LTD (NYSE:RIG). Paul Singer has targeted Hess Corp. (NYSE:HES). Barry Rosenstein and David Einhorn have targeted Oil States International, Inc. (NYSE:OIS). All three stocks have run up as a result. The question now is what should investors do with each one?

Carl Icahn drilling for profits at Transocean

Carl Icahn has targeted Transocean LTD (NYSE:RIG) to return cash to shareholders and initiate a dividend. Transocean LTD (NYSE:RIG) specializes in harsh and ultra-deepwater drilling. The bulk of its drilling activities are in the Gulf of Mexico, Brazil and Norway. Revenue in Norway has grown from $756 million in 2010 to almost $1.2 billion last year. In the Gulf of Mexico, drilling activity is returning after the Deepwater Horizon accident and oil spill in 2010. More drilling will take place this year than before the accident in the Gulf of Mexico, which is bullish for drillers like Transocean LTD (NYSE:RIG).

Carl Icahn is the largest shareholder in Transocean LTD (NYSE:RIG), with more than 20 million shares worth north of $1 billion. He won a partial victory against the company when he got the chairman ousted and one of his nominees placed on the board. He agitated for a $4 per-share dividend, but the company only paid a $2.24 dividend. Still, it’s better than what the company was paying before, which was nothing.

In looking at Transocean LTD (NYSE:RIG), I still think there’s more room for the stock to go higher. The company is still cheap. The stock trades at a forward P/E of 8.7 and has a PEG ratio of only 0.5. Book value per share is $44.54.

Considering that the stock has under-performed the rise in the S&P 500 in the past year, the stock has not had a huge run since Icahn got in. He’s still holding the stock and Billionaires David Tepper and Steve Cohen are long the stock, as well.

Paul Singer refining profits at Hess

Paul Singer launched a proxy fight against Hess Corp. (NYSE:HES) and just recently settled with the company. John Hess was stripped of his chairman title and Singer got three of his nominees named to the board. Singer is also pushing for a reorganization of the company and a focus on splitting its international exploration and production assets from its U.S. assets. Singer also wants the company to separate its downstream assets. Basically, he wants the company split up into three parts.

The crown jewel of the company’s assets is its Bakken Shale assets. The Bakken Shale is one of the fastest-growing oil and gas plays in the world. Hess is the second-largest oil producer in the Bakken. Singer feels that the Bakken assets would trade at a premium if spun-off from the company’s other businesses.

In looking at shares of Hess Corp. (NYSE:HES), the stock is still cheap trading with a P/E of approximately 8.3. The stock is trading just above book value per share of $66.09 and has been a good performer over the past year with a rise of just over 42%.

Singer is the second-largest holder in Hess Corp. (NYSE:HES) after T. Rowe Price. Singer’s Elliott Management added to its stake in the first quarter of this year and now holds 15 million shares worth almost $1.1 billion. Even though the stock has had a good run in the past year, I still think there’s money to be made if and when the company is broken up. The parts are worth more than the current price, and Singer has indicated that he sees the value of the company as high as $126 per share.

Barry Rosenstein and David Einhorn check-in at Oil States

Barry Rosenstein was the first hedge fund manager to alert the investment community about Oil States International, Inc. (NYSE:OIS). David Einhorn followed up at the Ira Sohn Value Conference that he liked the stock as well. The hidden gem in Oil States International, Inc. (NYSE:OIS)’ portfolio is its attractive accommodations business. The company provides housing to oilfield workers. Rosenstein and Einhorn want the accommodations business spun-off into a REIT and separated from its oilfield-services businesses.

Barry Rosenstein’s JANA Partners is the largest shareholder in Oil States International, Inc. (NYSE:OIS) with a 9.1% stake. David Einhorn’s Greenlight Capital owns just under 5% of the company worth $220 million. News of JANA’s stake has been the cause of the company’s recent run-up in price. The stock was trading at around $75 prior to the disclosure of the 9.1% stake in April.

Due to the recent increase in price, it’s tough to initiate a new position around $100. The company is still attractive trading at a forward P/E of 12.8 and a PEG ratio of approximately 0.9. Expectations are baked into the stock price that the accommodations business will be spun-off. How much more upside remaining in the near-term remains to be seen. A dip into the low $90s would be a better entry point.

Foolish assessment

All three companies have been shaken up by these activist hedge fund managers. They have benefited existing shareholders by forcing management changes and increasing share prices. I see further upside for Transocean LTD (NYSE:RIG) and Hess Corp. (NYSE:HES) shares and see Oil States International, Inc. (NYSE:OIS)’ shares as a hold. The move in Oil States International, Inc. (NYSE:OIS) has happened too fast and the majority of the gains in the stock have already occurred.

The article Is It Too Late to Get in on These Energy Names? originally appeared on and is written by Mark Yagalla.

Mark Yagalla has no position in any stocks mentioned. The Motley Fool owns shares of Transocean. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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