Buy When There Is Oil in the Ocean?

An intriguing investment idea was mentioned yesterday on CNBC by from the perspective of a stock that is severely damaged by extremely negative news. According to CNBC, Vernon said that:

..from a single-company perspective, Transocean has been blown out of the water with institutional investors not wanting the blood on their hands.”

He explained that despite the recent catastrophe involving the offshore drilling giant, Transocean has a “lot of upside” and recently raised its dividend.

“When there’s blood on the streets, it’s time to buy,” he said.

Transocean is the drilling firm that was operating the rig in the Gulf of Mexico that blew up and has resulted in the gushing oil.

The stock (symbol:RIG) has dropped from a 52 week high of $94.88 per share to a current price around $55, a near 50% drop.

Of course, it appears that Transocean will likely be open to liability because of the accident. But, it should be noted that Warren Buffett's mentor, Benjamin Graham, felt that in general stocks and bonds over-reacted to legal clouds overhanging a firm.

I'm not saying that Transocean is a buy, but if someone did the legwork to find out what the likely liability that Transocean will face is, they might find that the stock is a screaming buy, on the other hand, it's possible that the liability will be so huge that Transocean is overpriced even now. My point is that there is likely a lot of emotional trading in Transocean stock right now, with few grasping the full liability of what the Gulf of Mexico disaster is to Transocean. Do the legal legwork, find out and you might have a nice trade in Transocean.