I took advantage of one of the few declines in the market in 2013 today by adding to my position in Emerald Oil (EOX). The stock was a laggard in my portfolio for 2012 but the stock has performed much better recently on the back of some positive catalysts. Aggressive growth investors looking to increase their exposure to the rapidly expanding shale oil production coming from domestic sources should consider the shares. The company has rapid revenue growth ahead of it and could easily become a buyout candidate given its small market capitalization and assets in some important shale regions.
Recent positive catalysts:
- It received a $50mm investment from private equity firm White Deer.
- In conjunction with this investment, the company upped its production guidance this week to 2,600 Barrels of Oil Equivalent ((BOE))/Day by year-end from its 2,000 BOE/D previous guidance. It currently produces around 1,100 BOE/D.
- It also raised its capital expenditure forecast to $110mm in 2013 from $72mm previously.
- Earlier in January, it raised $10mm by selling non-core leases in the Sand Wash Basin.
Emerald Oil is an independent energy company. The company focuses on oil and natural gas properties primarily located in Montana, North Dakota, Colorado and Wyoming.
4 reasons EOX is a solid speculative play at $6 a share:
- Revenues are exploding. The company tripled sales in FY2012 and analysts believe another approximate 70% increase is in store for FY2013, and this was before the production guidance increase today. Look for revenue upgrades in coming weeks by analysts.
- The stock is cheap as it is priced at less than book value. The company also has been net cash flow positive for each of the last four quarters even as it has posted a small net aggregate earnings loss.
- FY2013 could be a game changer for the company as it moves from a small net earnings loss to a projected profit of just over 20 cents a share.
- The company had net cash on its balance sheet even prior to this latest financial transaction. Given the stock sports an under $150mm market capitalization, exponential increasing production and choice shale assets. Put this on your possible acquisition list if M&A activity in the E&P space accelerates.
Disclosure: I am long EOX.