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, information on Emerald can be found in Part III, information on Crimson Exploration (CXPO) can be found in Part IV, and information on Magnum Hunter Resources (MHR) can be found in Part V.
Halcon Resources (HK) is another stock ready to benefit from the January Effect. Halcon is led by Floyd Wilson who built Petrohawk Energy and sold it for $12.1 billion. Halcon is Mr. Wilson's new attempt to aggressively build a fast growing oil and gas company. Halcon is currently trading for $7.09 and has traded as high as $13.30 and as low as $3.30 over the last 12 months. Halcon has a $2.5 billion enterprise value. With the close of a recent acquisition Halcon now has approximately 18,500 Boepd in production and plans to grow production to 40,000 Boepd in 2013.
The company has a diversified portfolio across several different shale basins. Halcon has 135,00 net acres in the Bakken and 200,000 net acres in the Woodbine/Eagle Ford play. Due to a non-compete agreement, Halcón plans to divest an additional 24,000 net acre Eagle Ford position in a different part of the basin. Halcon has 130,000 net acres in the Utica and has accumulated 70,000 net acres in the emerging Tuscaloosa Marine Shale.
Halcon is very undervalued compared to Kodiak Oil & Gas (KOG). Kodiak has an enterprise value of $3.27 billion and has 153,000 net acres in the Bakken. The company exited the third quarter with 15,885 Boepd in production. With taxes on capital gains rising next year by 3.8% from the Affordable Health Care Act plus whatever the final negotiated tax rate is for the fiscal cliff, investors with long term gains in Kodiak should consider selling this year and swapping into Halcon.
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, Crimson, Magnum Hunter, and Halcon 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.