GulfMark Offshore Inc. NEW (fka GLFMQ) (GLF)

[Timothy Smith]

Why now's the time to consider buying

Although dayrates (the fees drilling contractors receive from oil and gas companies for their services) have increased, utilization rates have gone down slightly because of lower activity. Add in the uncertainty still lingering around the Gulf of Mexico after the Deepwater Horizon oil spill, and it's no surprise that the market hasn't paid much attention to the stock until very recently.

However, recent drilling success in areas like East Africa, along with increasing activity in other areas like the Black Sea and Falklands give the company reason for optimism.

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. And with companies like ExxonMobil and Chevron leading the way, it's hard to believe this is just a hunch.

This marks a huge shift from the cautious spending of the past few years. What's more, with experts forecasting that the current price of oil is sustainable and set to increase, deepwater drilling should become more profitable.

Shareholders and managers unite

CEO Bruce Streeter is a busy man, serving as both the company's COO and President. But I'm not concerned.

You see, insiders own 10% of GulfMark's outstanding shares. Even better, the company ties compensation to operating income. Together, these two facts ease my concerns about Streeter's multiple roles.

What's more, stock ownership guidelines require management to own a percentage of shares in the company, meaning they have a strong incentive to make good decisions.

Risks to be aware of

Global oil and small-cap companies present their fair share of risks. At GulfMark, there's a few factors to monitor:

Spin cycle: This is a cyclical industry, so be prepared for some volatility. However, a long-term pinch in demand could be dangerous.
As the world turns: GulfMark will provide global exposure to your portfolio, but this diversity also brings the inherent risks of dealing in foreign economies.
Drydocking pay: Drydocking expenses (taking a ship out of water to conduct repairs) are a cost of doing business in this line of work. More drydocking expenses means less work and less money.
Getting more than what you pay for

Valuing an oil services company based on cash flows is tricky given the price of oil, sporadic capital expenditures, and unforeseen incidents like last year's BP oil spill.

Nevertheless, GulfMark's capital expenditures should drop significantly going forward, adding a nice boost to cash flows. The stock trades today at roughly 1.3 times its tangible book value, below the 10-year average of 1.7.

Any increase in demand for oil would boost free cash flow, giving us a fair entry point today for a company with significant growth prospects ahead.

Oil and natural gas are sure to be long-term winners. They're finite resources that will serve a vital role in our global economy for many years to come, and GulfMark Offshore is a strong way to play on that outlook.

I was bold with this small cap, giving it a 6% position in my real-money Rising Stars portfolio. I invite you to join me, as I anticipate some serious gains for years to come.

This, of course, isn't the only way to play energy right now. Next we'd like to share with you a drilling contractor that has a lot of investors nervous -- meaning opportunity abounds.

This post is for DD purposes only and not a recommendation to buy or sell.