Dead Dog Survey (Part 1)

 |  Includes: PINN, PLLL, QRCP, TRMAQ
by: MyHappyTrading

by Skymist

Last time I began taking a look at the stocks in the energy or materials sectors which have fallen at least 90% in the past year. These stocks are not only dogs with fleas, but in most cases the fleas have pretty much made these poor dogs into roadkill. Let's continue...

PINN closed Friday at $0.43. It is almost purely a natural gas producer, operating in the Rocky Mountains. Looking at the stock's record, it is clear that the price of natural gas alone was not sufficient to sink the company to this extent. In 2007 this was a $9 stock, and it has been sinking with few respites since then. It was mentioned in Motley Fool as one of the "Worst Stocks in the World" in one of their teaser articles. In general, it simply appears that the company has had terrible lapses in judgement in which properties to acquire. Now that natural gas has made a few moves to the up side, PINN is rising - but is any price high enough to save this company from its faults?

PLLL is Parallel Petroleum Corp, another producer of oil and gas which operates in the Texas Permian basin. Once selling for over $27 a share, PLLL closed Friday at $2.19. Unlike PINN, PLLL has had strong sales and production, but also high debt. Nothing sinks an overindebted company like a drop in its profit margin. The company was a gamble on rising oil and gas prices which lost. But, the game isn't over for PLLL. The company did fine with oil over $100 a barrel, and it might yet get back to that point. Part of the problem is why should you buy this stock, when you could instead buy a company with lower debt which will grow faster during the oil price rise? That, and a potential dilutive offering, keep the buyers away.

Quest Resource is a natural gas production and pipeline company operating in Kansas and Oklahoma. Once a respectable $13 stock, QRCP closed Friday at a pathetic $0.50. The company used to pay a healthy dividend, but has been wading through a seemingly endless array of problems, including lawsuits, resignations of key executives under bad circumstances, investigations into shady dealings, and more. This stock is not a cozy place to park one's savings.

SSN is a US division of an Australian company which explores and develops oil and gas, including oil shale. Closing at 59 cents Friday, this former $7 stock, like many, carried short term debt to finance long term projects with the intention of benefiting from $140 oil, and found itself squeezed into many uncomfortable positions. Partly bank-owned now, it struggles on with stagnant revenue and negative profit, heavily burdened.

STXX is South Texas Oil, which fell from a height of $11 to Friday's 67 cents, suffering the now-familiar fate, like SSN, of holding short term debt during a long term deflation of its assets. Although its sales and production have been growing, the company has produced no profitable years even when oil was high, and its destiny seems fairly forlorn. Soon to be delisted from Nasdaq.

SYMX is Synthesis Energy Systems, Inc. It closed Friday at $1.54, up over 35%! This is coal Gasification, and is considered an alternative energy source. This type of energy is only useful if oil is very expensive, and forecasts of oil at high prices can move the stock higher. When oil was high, the stock was near $8, but as the situation changed, the company had to change its plans a lot. In particular, a pilot plant for making gasoline from coal was canceled last October. However, every time someone talks about $150 oil, someone else will buy shares in this stock. Why not just buy shares in an oil company instead?

TEC is Teton Energy, a 35 cent oil and gas stock which once sold for $4.50. The by now all too familiar story, with debt and low gas prices, has caused this distressed company to dilute its stock by 10-20% a year, not a strategy designed to attract new stockholders by any means.

TPUT is Barzel Industries, a maker of steel, aluminum, and stainless steel tubing, sheet, and other form factors for industrial customers. I don't have a lot of information on the journey of this stock from $3.50 to 22 cents, but you can bet that a shrinking manufacturing base, including automotive, could have been a factor.

TRMA is Trico Marine Services, a former $39 company which now hangs out a little over $3. This company takes care of ships and oil rigs at sea, delivering fuel, cleaning bottoms, etc. The shutdown of so much Gulf drilling might have been a factor in this company's troubles, but there is more to it than just that because company revenues doubled in 2008 but a terrible loss sent the stock plummeting, and a proxy battle ensued for the board of directors, with accusations flying.

It's interesting that one company I had intended to review, TXCO, actually was delisted due to bankruptcy before I could write this article. More will follow. So, what have we learned? For one thing, you should not make yourself dependent on short term credit in a credit crisis. You should not mortgage an asset which is subject to extreme deflation. That which goes up must come back down - but not necessarily the reverse. But yes, there could be recovery money to be made here. Purely as a trading vehicle, SYMX might be worth looking into. Of the companies I looked at Monday, AHD, EXXI and CFW attracted enough attention to move up in price quite a bit. But I would not recommend any of these for serious investments, not until they have developed a more tangible justification for their future.