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. Bakken/Eagle Ford stocks recommended for investors to consider as January Effect candidates were Northern Oil & Gas (NOG) and Goodrich Petroleum (GDP). Information on Northern and what makes a good January Effect stock can be found in Part I, and information on Goodrich can be found in Part II.
Emerald Oil & Gas (EOX) is the next Bakken stock investors should consider as a January Effect candidate. Emerald is trading for $4.95 and has traded as high as $25.20 in the last 12 months and as low as $3.90. Emerald has an enterprise value of $114 million and has only 24 million shares outstanding. The company has 48,400 net Bakken acres, mainly in North Dakota. Emerald is transitioning to an operating company in the same mold as Triangle Petroleum (TPLM) and 16,000 net acres are now operated. The company also has 972 Boepd in production. On a per net acre basis Emerald trades for less than half of what peer companies like Kodiak Oil & Gas (KOG) and Oasis Petroleum (OAS) trade for.
In addition to its Bakken assets Emerald has significant acreage positions outside of the Bakken that it seeks to monetize. The company has 33,500 net acres in the Heath Oil Shale and 45,100 net non-operated acres in the Sandwash Niobrara. Quicksilver Resources (KWK) reported IP 792 boepd from a short horizontal well and 162 boepd from a vertically fracced well in the Niobrara. The Niobrara position is an emerging play that could provide significant upside for Emerald.
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 Northern, Goodrich and Emerald are 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 therefore consider selling half of their position in the middle of January and the rest of the position before the end of March.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.