JeffReeves

There is no shortage of risks in the stock market as the end of the year nears.

There’s fear of deflation in Europe. and some economists are predicting a triple-dip recession for the region. China’s growth is running at the slowest pace since before the financial crisis, and it’s still losing steam.

And there was some serious volatility at home in October, with the CBOE Volatility Index (VIX) soaring briefly to its highest level in over two years. The Dow Jones Industrial Average frequently recorded triple-digit swings.

Despite those challenges, I think the market is primed to move higher in the long run. Consider a recent report from FactSet, which shows the forward price-to-earnings ratio of the S&P 500 Index is still below the market’s average since 1999. Or that, thanks to falling gas prices, a University of Michigan consumer sentiment survey was at a seven-year high at the end of October.

The fear of buying stocks near record highs may be justified. But why not focus on less-known companies that have been beaten down? They just might outperform in 2015.

Here is a list of some bargains I’m watching now.

• Sector: oil & gas services
• Market value: $10.8 billion
• 2014 return: -47%

Energy prices have plummeted, and stocks like Seadrill SDRL, -5.79% have paid the price. As an oil-service company that focuses on offshore drilling, Seadrill is in particularly dire straits given that the cost of deepwater extraction makes even less sense when crude oil is cheap.

However, after a big drop this year, it’s hard to imagine things getting worse.

And it’s not like Seadrill is just sitting there, waiting for crude to bounce back and business to pick up. Zephirin Group recently offered a bullish take on the stock, in part, because of two big engagements in West Africa, where the company is contracting with Total TOT, -2.24% and Exxon Mobil XOM, -0.42% Seadrill is comfortably profitable and isn’t going anywhere.

The biggest risk, however, is a cut in Seadrill’s juicy dividend, which at a recent payout of $1 per quarter works out to a staggering 18% yield. With projected earnings of about $3 a share, there simply is not enough money to keep up that kind of distribution for long.

But even if the dividend is slashed by 75% to 25 cents, you’ll still enjoy a nearly 5% yield. And, most importantly, you’ll be buying at the bottom to benefit from share-price appreciation and dividend growth. The forward price-to-earnings ratio is less than 7.