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Sometimes life and the markets do not seem to have any rhyme or reason. As we are two weeks into the fourth and final quarter of trading for the year, I am reviewing a lot of the articles I have penned in the first nine months of the year. I am reviewing these past pieces for lessons learned, possible follow up pieces and also to see if I can spot any trends.

One thing that stands out is how well a couple of articles around speculative $3 stocks have done. Himax Technologies (NASDAQ:HIMX) which I highlighted in February has rose from $3 a share to over $10 currently. I did a follow up article in March on two different speculative $3 stocks. GT Advanced Technologies (NASDAQ:GTAT), one of the two stocks mentioned in that piece has risen to over $8 a share over the past six months. The other two stocks mentioned in the two articles have gone basically nowhere and trade with a $2 handle.

The average gain of the four stocks in these two pieces is just a tad under 100%. Not a bad performance even if I cannot find any reason why this price range seems to have provided outsized gains this year. As my late father used to say "If it ain't broke, don't fix it". In that vein, here are two more $3 stocks that I think have considerable upside.

Warren Resources (NASDAQ:WRES) is an independent energy company engaged in oil and natural gas production. The company focuses primarily on its waterflood oil recovery programs and horizontal drilling in the Wilmington field within the Los Angeles Basin of California. I have owned this small E&P concern for almost a year in which time it shows a small gain in my portfolio. However, I believe better days are ahead in the near future.

Consensus earnings for both FY2013 & FY2014 have risen ~20% over the past three months. In addition, the company has beat bottom line expectations each of the last two quarters. Warren is experiencing steady production growth and revenue should post a 7% to 8% gain both for this fiscal year and in 2014 according to analysts' consensus. The stock sports a five year projected PEG of under 1 (.94).

The company has a solid balance sheet. The stock is cheap at under 4x operating cash flow and around ten percent over book value. WRES sells for less than 9x forward earnings, a significant discount to its five year average (14.6). Three analysts follow the stock and they have price targets of $3, $5 and $5.25 a share respectfully on the shares.

Finally, the stock just spiked over its 200 day moving average (See Chart) and bears watching to see if this is finally a real breakout instead of another false start.


(Click to enlarge)

Abraxas Petroleum (NASDAQ:AXAS) is another small E&P concern with acreage in most of the core shale producing ranges in the United States. It has risen more than 40% since I first profiled it at $2 a share in a Small Cap Insight article in July. However, I still believe there is significant upside left in the shares.

First of all, I like that insiders have made small frequent purchases of the stock since July. Second, it posted a positive operational update in late September and it should also be helped eventually by the advanced well completion techniques being pioneered right now by fellow Bakken producer Whiting Petroleum (NYSE:WLL). These techniques are lowering costs and raising production in Whiting's Bakken acreage.

Consensus earnings estimates for both FY2013 & FY2014 have moved up more than 30% over the past three months, mainly as a result of an upwardly revised production update in August. Analysts believe the company can ~doubled the earnings of 15 cents a share it is tracking to in 2013 in FY2014. Abraxas should also follow this year's 40% revenue gain with at least another 30% sales increase in FY2014.

Finally, AXAS sells for less than 10x forward earnings, a deep discount to its five year average (20.3).

Source: 2 Speculative $3 Energy Stocks With Significant Upside