Better Days Ahead For Wärtsilä

This has been a challenging year for Finland's Wärtsilä (OTCPK:WRTBY) (OTC:WRTBF), as the sharp downturn in the energy market has continued to weigh on energy-related orders like drillships and gas carriers. When I last wrote about Wärtsilä, I didn't think investors needed to be in a hurry to buy up shares, and the stock's roughly 5% move since then doesn't leave me feeling as though I've missed much. That said, I believe things are looking up for this business.

While Wärtsilä's oil/gas-related business has definitely been hurt, the company's diversification is paying off as cruise operators continue to order new vessels. Although cruise ships take longer to build and deliver than merchant or energy vessels, they are potentially much more lucrative to Wärtsilä in terms of total addressable content beyond engines (electrical systems, automation, etc.). What's more, the company's power gen business has been gaining share and looks well placed to benefit from the growing demand for flexible baseload and peak load generation.

All told, while these shares are not wildly undervalued, and 2017 is unlikely to see a strong earnings rebound, they do look priced to generate a low-double-digit annual return. With a lot of skepticism around the name and a lot of worry about the oil/gas business, I think there could be an opportunity to start looking at a contrarian position here.

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Better Days Ahead For Wärtsilä