Learning to Love RIG, Financials

Interesting meeting just now with Stephen Jones and Tom Villalta, managers of the Jones Villalta Opportunity fund (JVOFX), who say they haven’t lost their love for Transocean (RIG), even though they bought the stock before the April 20 disaster aboard Transocean’s Deepwater Horizon drilling rig in the Gulf of Mexico, an incident that has since shaved about $8 billion off of RIG’s market cap.

While they’re not doubling down on the stock, Messrs Jones and Villalta are holding onto shares out of a belief in the quality of management and the excellence of Transocean’s fleet of rigs. “There are other opportunities in the world,” besides the Gulf, says Villalta, and Gulf drilling is not going away.

“Deep water is the place to be,” says Villalta. “I think Obama made a pragmatic decision to endorse offshore drilling to get what he wants on the environment front,” meaning that the President is unlikely to back away from his support for Gulf drilling anytime soon, despite the enormous cost the spill represents to the U.S.

Another favorite in energy where they’ve been buying is natural gas developer Chesapeake (CHK), whose peers in gas are increasingly spending more effort on oil drilling. As they do so, argues Villalta, that limits capacity growth in gas digging, which makes Chesapeake’s vast holdings in gas sites in the U.S. more lucrative.

“It’s kind of like a reverse home builders play,” says Villalta, alluding to the supply and demand dynamic of home construction.

Smelling opportunity in other disasters, the two gentlemen have increased their stakes in Goldman Sachs (GS), Bank of America (BAC), and have recently put new money into Capital One Financial (COF). “Big money center banks and diversified financial conglomerates are where we want to be,” says Jones. The banks have the opportunity to make a tremendous spread off of low interest rates within an economy in a turnaround, as Jones explains it.

Regarding Goldman, Villalta sees little likelihood the Securities & Exchange Commission suit is not resolved by Goldman, perhaps through a settlement. And if that ends up taking CEO Lloyd Blankfein out of his job, Villalta’s fine with that as a shareholder.

As for COF, it’s a way to have a more direct exposure to improving fundamentals among consumers, as delinquencies moderate and loan-loss provisions abate in the credit card business.

And what are they stepping away from?† Trimming positions or just standing pat with consumer discretionary stocks, including Liberty Media (LINTA), owner of QVC, and Home Depot (HD), though Jones still loves the kinds of earnings growth the latter turned in yesterday. The risk-reward in consumer is “not as positive as it was a year ago,” notes VIllalta.

JVOFX is off 31 cents, or 2%, at $15.25.