3 Under-the-Radar Stocks for 2014

The next year will bring plenty of exciting investment opportunities, but not all the highfliers will be popular names. Our analysts uncover three gems investors do not want to overlook in 2014. 

Matt DiLallo: I don't think investors give Cabot Oil & Gas (COG 0.36%) much credit for its incredible natural gas business. While its stock outperformed the market over the past year, Cabot isn't a name many investors know. Because of this, I think the company will continue to fly under the radar, giving investors the opportunity to buy the stock before the market realizes how good its prospects really are.

Cabot is one of the lowest-cost producers of natural gas in America, so it earns terrific returns drilling for natural gas even in today's low price environment. For example, at a natural gas price of $3.50 per Mmbtu, Cabot can earn an internal rate of return of 100% for wells it drills for about $6.5 million. However, investors should expect those returns to get even better as natural gas prices rise and Cabot drills wells more efficiently.

Looking ahead to 2014, Cabot believes it can improve upon already rock-bottom costs as it transitions more of its operations to pad drilling. For example, the company plans to drill 60% of its wells on a pad with five or more wells, which is substantially higher than the 23% of wells drilled on a multiwell pad in 2013. The company sees this transition cutting costs from $6.4 million per well for a two-well pad to less than $5.8 million per well for a 10-well pad.

With production increasing by as much as 50% in 2014 and triple-digit returns on its wells, Cabot is a great under the radar natural gas stock for 2014. 

Isac Simon: Triangle Petroleum (NYSEMKT: TPLM) is a growing independent oil exploration and production company operating in the Bakken Shale and Three Forks formations of the Williston Basin. The company's 55% stock appreciation in the last 12 months can be credited to the exponential increase in production volumes, thanks to Triangle's efficient pad-drilling and zipper-frac program in the liquids-rich Bakken.

Since commencing operations in May 2012, the Denver-based Triangle achieved a solid third-quarter production rate of 6,804 barrels of oil equivalent per day with just three full-time drilling rigs. That's a fantastic 390% growth from last year's third quarter, with the third rig being pressed into service only in 2013. Not surprisingly, revenue shot up 316% in the same period.

The highly efficient pad-drilling technique ensures that multiple horizontal wells are drilled from the same pad using a single rig. Additionally, the zipper frac method allows the frac crew to simultaneously stimulate one well while perforating and plugging an adjacent well when both the wellheads are located on the same pad. That cut down completion time per well significantly. Average spud-to-total depth drilled days fell to 23 from 28 a year ago. Looking ahead, I see a further fall in the number of drilling days per well as the rig count goes up. Triangle, additionally, has its own oil services subsidiary in the form of RockPile Energy Services. With a lower reliance on third-party services, cost and infrastructure constraints are further minimized.

Right now I'm not too concerned about the company's $200 million debt. There's still a long way to go and develop its 94,000 acres in the expensive, but highly productive, Bakken. Management has so far used its capital sensibly, with $100 million left in cash reserves.

Tyler Crowe: In the offshore rig space, almost everyone's attention is on Seadrill (SDRL +0.00%) because of its very ambitious expansion plans and that juicy dividend. While all that attention may be well deserved, it means that Ensco (ESV +0.00%) is overlooked when it is a gem of a company itself.

Look at any of the pertinent metrics in the offshore rig market and Ensco keeps well within reach of Seadrill.

Source: S&P Capital IQ and Investor Presentations.

Ensco has been able to replicate much of Seadrill's success because they both are following a pretty similar game plan: focus on the ultra-deepwater and the harsh-environment jack-up rig. These two segments of the market are in the highest demand, and companies are paying top dollar for the best technology.

Ensco also has much more disciplined capital allocation program than its competitor.

Source: S&P Capital IQ and Investor Presentations.

Right now there is a voracious appetite for offshore rigs, so Seadrill can afford to spend money like drunken sailor on leave and almost double its fleet size within the next couple years. If there was a downturn in the industry, though, Ensco would be in a much better position to weather the storm.