Hercules Offshore, Inc. (HERO)

HERO is certainly my hero. Since I got in back in April, at $1.74, I am up almost 200% actual and about 166% vs the S&P.

Since I am in this stock in real life, with real money, that 200% works fine for me.

There has been a lot of speculation and disagreement about the eminent demise of this company. On Oct. 7th there was an MF article telling about what a winner it was going to be. Then on Oct. 9th, there was another one telling about why you should avoid it like the plague.

It seems the primary reason some have written this off is that they are a shallow water service company with too much debt; and there is some validity to those points.

I would however like to share some contrary thoughts on this subject. The oil and gas business, like others over the past year or so has been hit hard,; and the servicing companies even harder. I do believe, however, it will come back as there is recovery in the economy. I disagree that shallow water drilling is a thing of the past. There has been some recent activity in this area; and as a native of the Gulf Coast, I just do not buy into the argument that all of the oil and natural gas in these waters (as well as shallow waters globally) has been discovered. I have been involved in the O & G industry in the past. It costs a lot less to recover and does not have to be a "home run" to pay off.

Now, as to their debt, they have taken recent steps to address that. They did a stock offering on Sept. 30 which should net them about 83M; and sold Senior Secured Notes of $300M on Oct. 8th. Their stated purpose for these offering was to pay down debt. They had too much for these times and that was a prudent and necessary thing to do.

The notes do not mature until Oct. of 2017, and will require semi-annual payments of about $15M beginning in April of 2010.

They showed a big loss in 2008, but his was due to writing off about 1.3B (mostly in goodwill). I like it when a company cleans up their balance sheet by getting rid of goodwill and impaired assets.

This was their first loss since going public in 2005.

They have had relatively small losses in the first half of 2009 (about $17M), but that is to be expected in the current economic situation.

As of June 2009, they had total assets of about $2.5B and total debt of about $1.5B. Their tangible net worth (no goodwill), was just under 1B.

Their current assets were $440M , to $255M in current liabilities.

They had a positive operating cash flow, and a positive leveraged free cash flow, which I think is very goog in these times.

While they will not likely get back to their historic highs of about $40 a share, there is still a lot of upside to this stock. Their current PE is only 4.5.

The latest analyst recommendation in September is to SELL, but I always take those recommendations with a grain of salt; whether good or bad.

Since I am in at $1.74 (took a chance when things looked even bleaker), I am very comfortable in holding this for the longer term and benefiting even more than my current (paper) profits. I am also comfortable in saying that in my opinion, this is still a good buy for the patient, longer term investor, who does not panic at the latest rumor or fluctuations and gyrations in the market.

As always, this is JMO and worth exactly what I am charging for it.

decent management and a change of administration in 2012