At the end of every year tax loss selling and window dressing create candidates for the annual January Effect. The best candidates are trading near their lows for the year and have either cash flow or assets that are undervalued compared to comparable companies. This year several companies with significant positions in either the Bakken or Eagle Ford meet the criteria of ideal January Effect stocks. The first Bakken/Eagle Ford stock recommended for investors to consider as a January Effect candidate was Northern Oil & Gas (NOG) and information on Northern and what makes a good January Effect stock can be found in Part I.
The next stock investors should consider is Goodrich Petroleum (GDP). Goodrich Petroleum is trading for $8.41, which is near the low of $7.77 and down from the high of $20.67. Goodrich has an enterprise value of $1.05 billion. Insiders own 28% of the company and there are only 27 million shares in the public float. The company has 38,000 net acres in the oil window of the Eagle Ford Shale and 83,000 net acres in the Haynesville Shale. Like many natural gas companies Goodrich is transitioning to liquids rich plays with significant success. However, the company remains poised to materially benefit from any rise in natural gas prices back above $5 per mcf.
Goodrich's neighbor in the Eagle Ford is Cabot Oil & Gas (COG). Cabot has recently made a major discovery in the Pearsall Shale a couple of thousand feet below the Eagle Ford Shale. The company also has 134,000 net acres in the emerging Tuscaloosa Marine Shale in Louisiana. Other companies pursuing the Tuscaloosa include Encana (ECA) and EOG Resources. It is too early to tell whether the Tuscaloosa acreage will have significant value. But the size of Goodrich's stake could make the Tuscaloosa a company maker.
Investors looking for January Effect stocks should be aware that some reach a low in November and early December and then climb before January as most of the sellers have already exited. Other January Effect stocks maintain selling pressure all the way into the last day of trading for the year. It would be wise to commit half of the capital to the play now and hold back the other half for a second round of buying if the selling pressure pushes the stock to new lows at the end of the year.
While both Northern and Goodrich are a very good buy and hold prospects, the objective of buying a January Effect stock is to look for short term gains. Some January Effect stocks recover the most by the middle of January and some continue to recover into the middle of March. Investors should also consider selling half of their position in the middle of January and the rest of the position before the end of March.