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Transocean to Enter S&P 500 Index

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Offshore drilling giant Transocean Ltd. (RIG - Free Report) is set to make an entry in the S&P 500 list on Mon, Oct 28, after the market closes. The company will replace the computer giant, Dell Inc. .

Dell’s exit from the index is an effect of its privatization move. Shareholders of the company voted in favor of the $24.9 billion privatization bid by Michael Dell, founder of the company, and Silver Lake Management at a special meeting held last month.

Switzerland-based Transocean will be included in the oil and gas drilling sub-industry of S&P 500 Global Industry Classification Standard (GICS), under the energy sector.  

The company’s addition to the index should prove beneficial, at least in the short term. It is because when stocks enter this largely monitored index, these are noticed by fund houses and other institutional investors. These investors make take up position on these newly added stocks, thus enhancing the stock value.

On Oct 21, the stock settled at $46.57, up 1.5% from the previous close. In after hours trading, the share price rose further to $48.44, representing an increaser of 4%.

Transocean is the world’s largest offshore drilling contractor and the leading provider of drilling management services worldwide. However, the introduction of new and more stringent regulations due to the oil spill has made deepwater drilling activity prohibitively expensive for exploration and production companies, making many projects marginal. Moreover, Transocean’s international exposure also increases its risk quotient.

Transocean currently holds a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.  

Meanwhile, one can consider other oil and gas drilling service providers like Ocean Rig UDW Inc. and Pioneer Energy Services Corp. (PES - Free Report) that offer value. Both these stocks sport a Zacks Rank #1 (Strong Buy).

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