Energy stock Transocean Inc. (RIG) is a good buy right now, according to one fund manager, because of its position in the industry and undervalued share price.

“Transocean is right in the sweet spot of the energy and petroleum space,” said Scott G. Richter, Portfolio Manager and co-director of large-cap value strategies at Fifth Third Asset Management, a subsidiary of Fifth Third Bank (FITB), based in Cleveland, Ohio. The fund, Fifth Third Disciplined Large Cap Value Fund (FEINX), trades on the NASDAQ exchange.

Transocean, an offshore drilling company headquartered in Vernier, Switzerland, is well-positioned in the energy space because of the projects it undertakes.

“These guys go out and drill down into five miles of water to bring up oil,” said Richter. “So it’s very difficult to get into one of these projects, and very difficult to get out. They get contracts with large, stable customers like Petrobras (PBR), Chevron (CVX) and BP (BP).”

Richter added that there is very little competition in the space because building just one of the oil-drilling platforms can cost more than $7 million. “There aren’t 100 different outfits doing this, it’s just a handful of them -- and Transocean is the standout right now,” he said.

In tracking Transocean for the last two quarters, Richter said that its price was boosted by a slight recent recovery in the global economy, and that the company was currently well positioned globally in places like China and India.

Richter said that in December of 2008, the stock fell under $50, but that recently it has been hovering around $77 or $78 per share. Richter said he expects the stock to be up in the range of 50% in the next year and a half to three years.

Additionally, Transocean has a positive cash flow and a “solid financial base” that makes it attractive to buyers to hang onto for the next 18 to 36 months. The company has the financial flexibility to buy back shares or pay down debt, and the ability to do that in today’s economy is attractive to prospective buyers.

Transocean also recently secured a large contract with Petrobras in Brazil, which Richter said is one of the “hotspots of the world,” given that it could be one of the largest oil pockets every found. “They are going to need quite a few rigs over the next few years to develop it,” he said. It is not unusual for companies like Transocean to make up to $500,000 per day on a rig, and many times contracts made with large oil companies have predetermined daily rates that reflect this.

Transocean’s price to earnings multiple is at 6.1 for 2009, and price to book ratio is 1.4. The price to cash flow ratio is 5. The company does not currently pay a dividend, but is considering it given the amount of free cash flow, according to Richter.

Richter said the company was yielding about $17 per share in annual cash flow, which amounts to around 22% growth each year.

“They are good at what they do, they have a dominant position, and they are very stable in an area that is often a volatile sector.”

Overall, Richter said Transocean’s ability to continually deliver a profit and their diversity of location in many different countries including China and the Middle East has put them ahead of the game moving into the third quarter.