Shorts Are Piling Into These Stocks. Should You Be Worried?: Quiksilver, Inc. (ZQK) and More

If you drill it, they will come
Since the Gulf of Mexico oil spill in 2010, ultra-deep offshore oil and gas drillers have received a bad rap and a minimal valuation relative to their historical averages. Noble, an offshore drilling contractor, is one such company, valued at less than eight times forward earnings. Sometimes these low valuations are deserved, while other times they appear to be irrationally cheap. In the case of Noble, I’m going to err on the side of the latter.

To begin with, much of Noble’s earnings inconsistency in recent quarters has to do with the downtime associated with introducing new drilling rigs into the fold. Removing these few hiccups from the equation would produce higher dayrate fees and stable to rising rig utilizations.

It’s also worth noting that Noble has a done a fantastic job of locking in its contracts well in advance. Seventy-four percent of the company’s operating rig days are already under contract in 2013 with about 50% spoken for in 2014. Noble’s backlog in 2012 also rose $600 million to $14.3 billion. With contracts lined up and energy prices remaining stable, Noble’s outlook appears bright. Barring a complete collapse in oil prices or another Gulf of Mexico moratorium, I’d consider Noble to be quite inexpensive here.

Foolish roundup
This week it’s all about standing in front of long-term momentum. In the case of Noble, with plenty of deepwater oil discoveries being uncovered, and Constellation, with its soon-to-be increased U.S. market share, short-sellers appear to be playing with fire. As for Quiksilver, short-sellers appear to have accurately diagnosed its lack of growth as a genuine concern.

What’s your take on these three stocks? Do the short-sellers have these stocks pegged, or are they blowing smoke? Share your thoughts in the comments section below.

The article Shorts Are Piling Into These Stocks. Should You Be Worried? originally appeared on Fool.com and is written by Sean Williams.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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