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 vs. 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 are Northern Oil & Gas (NOG), Goodrich Petroleum (GDP), and Emerald Oil (EOX). Information on Northern and what makes a good January Effect stock can be found in Part I, information on Goodrich can be found in Part II, and information on Emerald can be found in Part III.
Crimson Exploration (CXPO) is the next Eagle Ford stock set to benefit from the January Effect. Crimson is currently trading around $2.50, and has traded as high as $5.69 and as low as $2.41 over the last 12 months. The company has an enterprise value of $351 million. Like Goodrich Petroleum, Crimson is transitioning from natural gas to liquids rich drilling. Liquids production accounted for 50% of Crimson's total production in the third quarter of 2012. Crimson's main focus is drilling its oil-rich 18,500 net acres in Madison and Grimes County, which is prospective for the emerging Woodbine play, the Eagle Ford, and the emerging Georgetown play. Other companies drilling near Crimson on this acreage include Devon Energy (DVN), Apache (APA), and Halcon (HK).
Crimson's other main asset is its 8,200 net Eagle Ford acres in South Texas in Karnes, Bee, Zavala, and Dimmt County. The acreage in Zavala and Dimmit is surrounded by Chesapeake (CHK). Chesapeake is marketing its acreage, which is also prospective for the Buda and Pearsall, to raise cash. The sale could be announced soon and will establish a good valuation for Crimson's acreage in Zavala and Dimmit. Crimson also has acreage in the Haynesville, Niobrara, and James Lime.
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 your 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 Emerald, and Crimson 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.