GulfMark And Transocean: 2 Undervalued Deepwater Drilling Plays

| About: Transocean Ltd. (RIG)

If you're looking for strong, compelling investment opportunities then look no further than the oil and natural gas sector. We believe oil and natural gas are long-term winners as they're finite resources that will serve a vital role in our global economy for many years to come. The industry as a whole is primed for an uptick. In fact, the industry anticipates spending close to half a trillion dollars on exploration and production in the coming year. With the world's largest companies like Chevron and ExxonMobil leading the way, it's hard to believe that this is just a hunch.

As the BP Oil Spill is finally becoming a thing of the past, we are starting to see a huge shift from the cautious spending we have seen the past few years. With oil and natural gas prices expected to be at least sustainable if not substantially increase, expect the industry as a whole to continue to profit, especially deep-water drilling plays. Below we have two great Deep-water drilling stocks that you should invest in:

GulfMark Offshore (NYSE: GLF)

GulfMark Offshore provides offshore marine services throughout the world to companies involved in the exploration and production of oil and natural gas. We believe GLF is a strong buy opportunity for several reasons. To start, GLF has one of the youngest fleets in the industry and has seen recent drilling success in areas like East Africa. On top of that we've seen increased activity in other areas like the Black Sea and Falklands giving the company reason for optimism. Also, 14% of GLF's shares are currently owned by insiders, an optimistic indicator especially as GLF executives are required to hold shares giving them further incentives to contribute to GLF's future success.

In recent months, GLF has gone relatively unnoticed due to the lingering effects from BP's Deep-water oil spill. However, we believe we are finally turning a page on that incident. Analysts are finally Bullish on GLF as 85% of the 13 analysts covering the stock rate it as a BUY or higher. GLF has shown us the ability to make money, producing solid profit margins and total revenue for several consecutive months now. Going forward expect GLF's capital expenditures to drop significantly, giving the company a nice boost in cash flows. The stock currently trades around 0.9 times its book value, below its 10-year average of 1.7 making it a more enticing play. Like we stated earlier, we believe oil and natural gas are long-term winners and GLF is a direct pay on that outlook.

Our 12-month price target is $50, which would result in a total-yield of 35% add on a 2.70% dividend and you have a total net yield of 37.70%.

Transocean (NYSE: RIG)

Transocean is now notorious for being known as the company that operated the fateful deep water Horizon drilling rig for BP. Investors who know the company; realize that it's much more than that. Transocean is the world's largest offshore drilling contractor with 140 rigs operating around the world. Locations include Africa, the North Sea, South America, Southeast Asia, and of course the Gulf.

RIG contracts the operation of these rigs to oil companies like BP, ExxonMobil, and Anadarko. These companies pay Transocean a day rate ranging from $50,000 to $650,000 per day, depending on the type of rig. Ultra-deep water rigs, ones that drill up to 40,000 feet in water, command the most, while standard jackups command the least.

We believe Transocean is a strong investment and a compelling play as the market has unfairly set some really low expectations for the stock. Despite the horrific incident in the Gulf, global oil demand is not declining. As a result, RIG will continue to play a leading role in extracting oil worldwide.

RIG has a solid book of business overall. We like its 0.67 PEG Ratio, $10 billion in revenue, and the 6 billion in cash on the books. Analysts are also finally becoming bullish on Transocean as 71% of the 41 analysts currently covering the stock hold a BUY rating or higher.

Overall we believe RIG is a compelling undervalued play and an investment opportunity you should take advantage of. Our 12-month price target is $75, which would result in a total yield of 31%.

Disclosure: I am long RIG, GLF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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