It's not often that you find stock investors and commodities traders betting on completely different economic outcomes. But that's exactly the disconnect that exists today with oil. Consider contract oil drillers like Diamond Offshore, Ensco, and Noble - vendors that hire out their drilling rigs to the likes of Chevron and Exxon Mobil for a daily fee. The rise in oil prices over the past few years has caused the day rates they charge for their rigs to skyrocket along with their share prices. Analysts expect Diamond's earnings to rise 178 percent in 2006, and since most of its rigs are already under contract at even higher rates for next year, analysts are expecting earnings to jump another 86 percent in 2007. "We're booking rigs out into '08, '09 and even 2012 at very high rates," says Diamond Offshore president Larry Dickerson, who notes that such contracts are rarely broken. "I'm not sure the stock market appreciates the strength of earnings that are going to come in '08 and '09."

Since May the stock market has essentially been betting that drillers' earnings would fall with the price of oil, now about $63 a barrel. How else to explain stocks with triple-digit earnings growth trading at single-digit P/E ratios? Yet whereas equity investors may think oil is headed lower, commodities traders - folks who presumably have a better feel for oil's fundamentals than the typical stock jockey - are wagering the other way. The price of December 2007 oil futures is now near $70 a barrel, well above the current spot price.

Bob Rodriguez, manager of the FPA Capital fund, considers drillers a rare pocket of value in an otherwise overpriced market. Rodriguez, whose total returns rank him tenth among all equity-fund managers over the past 15 years, now has 40 percent of his fund in cash and 14 percent in oil drillers - most of which are down 20 to 30 percent from their May 2006 highs. "It doesn't surprise me that you've seen this rapid swing from superbullish to superbearish [on oil stocks]," says Rodriguez. "Most investors are rank speculators."

Available drilling rigs, particularly deep-sea drilling rigs, are in such short supply right now that the rates for rigs not yet under contract for 2007 are going through the roof, says A.G. Edwards oil-services analyst Poe Fratt. That's a rich opportunity for Diamond, which has more rigs available than most of its rivals. And it's one reason Diamond is Fratt's favorite driller.

Another: The company paid out a $1.50-a-share special dividend (on top of the regular 50-cent dividend) last February, and Fratt thinks 2007's special dividend - Dickerson confirms that there'll be one - could be anywhere from $3 to $5 a share. Add it up, and you've got a stock with that 86 percent projected earnings growth trading at only nine times next year's estimated earnings and offering a possible dividend yield of 5 percent to 7 percent. In other words, a steal.