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Part of why I enjoy researching stocks is to find hidden gems in the rough before they gain main stream coverage. While Commerzbank (OTCPK:CRZBY) and Rowan Companies (NYSE:RDC) are very different companies, both are gaining positive momentum going into 2014. Commerzbank is starting to put some of their lingering issues behind them and Rowan has set itself up for strong growth over the next 2 years.

Commerzbank

Commerzbank is the second largest back in Germany with 1,200 branches, 15 million private clients and 1 million business and corporate clients. Much like the US financial collapse in 2008, Germany suffered a similar collapse and Commerzbank took a €18.2 billion bailout from the German government. As a result of this, the German government took a 25% stake in the company. Commerzbank has repaid the government by using a new share offerings to raise capital. This government bailout along with an ugly merger with Dresdner Bank in mid-2008, caused share prices to plummet over the past several years.

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However, over the last several months there has been positive news that has driven the share price up over 100% since its low of $7.65 on July 3, 2013.

  • The German government announced in mid-2013 they are willing to sell their remaining 17% stake in Commerzbank to another approved European lender. This would allow the government to retain some control over the bank and safeguard Commerzbank's role as a lender to small and medium sized businesses.
  • Commerzbank continues to sell non-core assets to improve its risk profile and continue its focus on corporate and consumer banking. In July 2013, the company sold $6.5 billion in UK real estate loans to Wells Fargo. Through November 2013, the company has cut its riskiest shipping and real estate assets by a third to $11 billion.
  • Credit Suisse (NYSE:CS) sold its wealth management division in January 2014 to Bathmann Bank. Head of Commerzbank's wealth management, Gustav Holtkemper, said, "This (wealth management) market will change a lot over the next two, three years. Other Swiss banks are exiting the German market. That's where I see our chance." Commerzbank's wealth management business is the second largest in Germany with 70,000 clients and €53 billion under management. The bank hopes to increase its 10% market share with the Swiss banks leaving Germany.

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With positive news coming in over the past several months, it appears Commerzbank has turned the corner. Germany is leading Europe slowing out of its recession. While GDP growth slowed last quarter to 0.3%, the German economy is one of the strongest in the region. As Commerzbank sheds risky assets and renews its focus on its core business of personal and small business loans, the company will continue to see price appreciation over the next couple years.

Rowan Companies

Rowan Companies is projected to have the fastest EPS growth in the offshore drilling industry over the next 2 years. The company is entering the ultra-deepwater market for the first time with the construction of 4 ultra-deepwater drillships. 3 of the 4 have already been contracted out for 3 year terms with impressive daily rates. The Rowan Renaissance was delivered in December 2013 and will commence operations by April 2014. The other two ultra-deep water drillships will be delivered in June and October of this year.

Ultra-Deepwater drill ships

Location

Customer

Day Rate

Delivery

Commence drilling

Rowan Renaissance

West Africa

REPSOL

$ 619,000

Dec-13

Apr-14

Rowan Resolute

Gulf of Mexico

Anadarko

$ 608,000

Jun-14

Sep-14

Rowan Reliance

Gulf of Mexico

Cobalt

$ 602,000

Oct-14

Jan-15

Rowan Relentless

N/A

N/A

--

Mar-15

--

Rowan recently warned of additional downtime in 2014 due to customer required rig modifications and delays due to weather in the North Sea. The company reported an additional 68 days of downtime in total. As a result of this additional downtime and potential weakness in jackup contracts in the first half of 2014 that Noble Corp. announced, the stock price dropped roughly 3%. This presents a good buying opportunity for potential investors as Rowan has done a great job locking in long-term contracts for its new builds.

 

Rowan Companies

Transocean (NYSE:RIG)

Noble Corp (NYSE:NE)

Atwood Oceanics (NYSE:ATW)

Seadrill (NYSE:SDRL)

Market Cap. ($bil)

$ 4.0

$ 16.0

$ 8.3

$ 3.1

$ 17.6

Fwd. P/E (12/31/14)

10.1

8.3

6.4

5.9

10.5

P/B

0.85

1.02

1.04

1.4

2.57

EBITDA ($mil)

$ 596

$ 2,820

$ 1,850

$ 547

$ 2,560

Div Yield

0%

5%

3%

0%

10%

Current Ratio

5.74

1.95

1.4

2.89

0.45

When compared to its competitors in the industry, Rowan also stands out. While its 12 month forward P/E is higher than most its competitors, its projected P/E in 2015 is 6.7x. EPS are expected to grow another 52% in 2015. Rowan has also done a great job of managing its debt. It has roughly $2 billion in long term debt and just over $1 billion in cash. With consensus EPS of $3.17 in 2014 and $4.84 in 2015, the company is set-up nicely to initiate a dividend payout in the future. The offshore drilling industry has seen weakness over the past week. This creates a nice entry point for the long term investor.

Disclosure: I am long CRZBY, . 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.

Source: Off The Beaten Path Stock Picks