2 Stocks Prompting Great Expectations (Correct)

(Corrects story originally published Thursday to say that Ensco releases earnings Feb. 18.)

NEW YORK ( TheStreet) -- This is one of the most exciting earnings seasons in recent memory. When deciding what to write about I feel like a mosquito in a nudist colony. I sometimes don't know where to begin.

Before you are "bitten" by that graphic metaphor, let me introduce you to two companies that are about to step into the earnings confessional and reveal both their recent quarterly results and their future expectations. It's the guidance, those great expectations, that can drive a stock to new heights.

On Thursday Coinstar ( CSTR) will release its latest results after the market closes. The consensus estimate of analysts is for revenue of $580.19 million on earnings of 73 cents per share. This would mean a 27% drop in EPS from the year-ago quarter yet an 11.5% sales growth (in revenue).

CSTR provides automated retail solutions primarily in the United States, Canada, Puerto Rico, Ireland, and the United Kingdom. The company owns self-service Redbox kiosks that enable consumers to rent or purchase movies and video games, and self-service coin-counting kiosks where consumers can convert their coin to cash, a gift card, or an E-certificate.

It also looks to identify and evaluate building new self-service concepts in the automated retail space, which includes coffee, refurbished electronics, and photo self-service concepts. As of Dec. 31, 2011, the company had 35,400 Redbox kiosks in 29,300 locations and 20,200 coin-counting kiosks in 19,900 locations primarily in supermarkets, drug stores, mass merchants, financial institutions, convenience stores, and restaurants. The company was founded in 1991 and is headquartered in Bellevue, Wash.

CFO Galen C. Smith joined Coinstar in June 2009 and assumed the role of corporate VP, finance and treasurer in January 2010, overseeing corporate financial planning, treasury, mergers and acquisitions and investor relations.

In May 2011, he became the senior vice president, finance at Redbox leading financial operations in addition to business negotiations, including a digital joint venture with Verizon ( VZ) and studio deals with Sony Pictures Home Entertainment, Universal Studios Home Entertainment and Warner Bros. Home Entertainment. Prior to joining Coinstar, Smith was an investment banker at Morgan Stanley ( MS) in the Consumer and Retail Investment Banking Group.

Jim Cramer and Stephanie Link actively manage a real money portfolio for his charitable trust- enjoy advance notice of every trade, full access to the portfolio, and deep coverage of the latest economic events and market movements.

It's this kind of leadership that brings on joint ventures with a super telecom like Verizon and signals a corporate determination to innovate new ways to create recurring streams of revenue.

Analysts have underestimated (in my opinion) the potential of these kind of stocks whose time has come, which I highlighted in a recent article on this theme.

CEO Paul Davis owns nearly 140,000 shares valued at around $7.14 million but that's chump change compared to Goldman Sachs ( GS), which owns a whopping 2.91 million shares representing nearly 10% of the outstanding shares of CSTR. It appears the "smart money" is betting on its future success.

What's fascinating to me is the current short interest as a percentage of the float for CSTR is extremely high at 43.3%. As TheStreet's Senior Contributor Roberto Pendone recently wrote, "That means that out of the 27.36 million shares in the tradable float, 12.9 million shares are sold short by the bears. This is a heavily shorted stock with a low tradable float. Any bullish earnings news could easily spark a monster short-squeeze for shares of CSTR post-earnings."

I wholeheartedly concur.

Looking at a five-year chart of CSTR we can establish a pattern, a trajectory, and its operating earnings yield that is congruent and promising.

CSTR Chart CSTR data by YCharts

If the short squeeze in CSTR doesn't materialize after the earnings release and the ensuing conference call, look for shares to possibly re-test support at just below $49 a share.

If you don't want to take any chances, do what I did. Buy half a position now and half after earnings is released and the stock price breaks out of its recent trading range between $46.83 and $54.16 on heavier than average volume.

Another stock poised to benefit from higher energy prices and deep-water drilling technologies is Ensco ( ESV) the London-based company that owns and operates an offshore drilling rig fleet of approximately 77 rigs, including seven drill ships, 13 dynamically positioned semisubmersible rigs, seven moored semisubmersible rigs, 49 jack up rigs, and one barge rig used to drill and complete oil and natural gas wells.

ESV reveals its latest quarterly earnings results on Monday, Feb. 18, so potential investors have some time to evaluate it. The company's drilling rigs are located in Brazil, Europe and the Mediterranean region, the Middle East and Africa region, and the Asia Pacific rim region. It serves government-owned and independent oil and gas companies as well as various independent operators.

From a fundamental perspective ESV is trading for less than nine times forward and one-year earnings, and has a Price-to-Earnings-to-Growth (PEG, five-year expected) ratio of an extremely undervalued 0.40. It offers investors a reasonable 2.3% dividend representing a sustainable payout ratio of only 29%.

If ESV were to offer positive forward guidance and/or increase the dividend, it wouldn't surprise this analyst to see a 10% pop in the price-per-share within six months. The analysts' consensus estimate on EPS quarterly year-over-year growth is for a 24% increase to $1.29 a share. Revenue growth estimates for the latest quarter is for an increase of 9% to $1.09 billion. There's room for upside surprises here!

It's been almost five years since ESV was above $80 a share, as the chart below shows us. Yet, the analysts' consensus one-year estimate for the shares of ESV is a little above $68. With the revenue growth rate also seen in the chart, this share price growth estimate seems quite conservative.

ESV Chart ESV data by YCharts

As the company says about itself on its savvy Web site:
Ensco plc brings energy to the world as a global provider of offshore drilling services to the petroleum industry. For 25 years, we have focused on operating safely and exceeding customer expectations.
We are the industry leader in customer satisfaction, ranking first again with top honors for 2011 in 13 of 17 categories in an independent industry survey. Operating one of the world's newest ultra-deepwater fleets and largest fleets of active premium jackups, we have a major presence in the most strategic offshore basins across six continents.

I'm convinced enough to be a shareholder. If the company has good news and good guidance on Monday I plan on buying more shares, especially if shares settle back a bit before moving higher on increased volume.

While investors hold shares of ESV they'll get a higher yield than those who hold 10-year U.S. Treasuries, and the upside potential appears to be much greater than the downside risk.

At the time of publication the author had positions in CSTR and ESV.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Make smarter trading decisions and provide investment ideas that could help make you richer. Bryan Ashenberg does the dirty work so you don't have to!

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