While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Transocean (NYSE: RIG ) slipped 1% this morning after Goldman Sachs downgraded the drilling giant from "neutral" to "sell".
So what: Along with the downgrade, analyst Waqar Syed lowered his price target to $50 (from $53), pretty much exactly where the stock closed on Friday. While momentum traders might be attracted to Transocean's recent pop -- fueled by its addition to the S&P 500 Index -- Syed believes that the rally is particularly unsustainable due to the unfavorable industry trends working against the company.
Now what: Goldman sees significant headwinds in Transocean's near and long-term future. "The key catalyst for offshore drillers is increases in dayrates, and rates have flattened for UDW (ultra-deepwater) rigs while early signs of utilization/dayrate weakness in the deepwater market are emerging," noted Goldman. "RIG faces structural challenges as its floater fleet is aging and it needs to make sizable investments to high grade its fleet. It has taken some recent steps in that regard, but needs to do more." When you couple those risks with the stock's seemingly steep P/E of 25 -- a clear premium to peers -- I'd have to agree that Transocean's recent surge is a bit overdone.
More compelling energy plays
Think the days of $100 oil are gone? Think again. In fact, the market is heading in that direction now. But for investors that are positioned to profit from the return of $100 oil, it can't come soon enough. To help investors get rich off of rising oil prices, our top analysts prepared a free report that reveals three stocks that are bound to soar as oil prices climb higher. To discover the identities of these stocks instantly, access your free report by clicking here now.