Overnight Trade on Independent Oil Producer

 |  Includes: GMXRQ, PDCE, PHX
by: David Ristau

Yesterday, we had a nice day with our Short Sale of the Day on Harbin Electric Inc. (NASDAQ:HRBN), which was a short sale good for 2.8%. We got into Harbin in the morning at 25.60. We watched the stock sit at 25.75 for the majority of the day, but at 2 PM, HRBN started to lose buyer interest as seller interest rose. The stock plummeted down to 24.21. We exited at 24.90 for a 2.8% gain. The stock is down today to 22.50s, which is good for over 12% in gains. I hope some of you had more risk than I do and took advantage of that gain. Our Buy Pick of the Day did not meet our intraday requirements, so we did not get involved in ERX or ERY. Either way, it was a good day.

Now, we get into today’s Overnight Trade of the Day…

Overnight Trade of the Day: GMX Resources Inc. (GMXR)

Analysis: It is not typical for me to recommend an Overnight Trade in a stock that is up over 4% already the day before a company reports its earnings, but this opportunity is looking pretty stellar. I want to get involved with GMX Resources Inc. (GMXR), which is a small independent oil and natural gas producer in Texas, Louisiana, and New Mexico. The company is definitely a small player in the oil game, but I think it presents a very solid opportunity going into tomorrow for some nice gains.

The first reason that attracted me to GMXR, which is not even the best reason for investing into GMXR, is that independent oil companies, as a whole, have been having pretty good quarterly reports for Q4 of 2009. Twenty-four out of 34 of the companies that reported earnings in the past month, reported surprise EPS gains. Most of these gains were pretty outstanding, as well. GMXR’s closest competitors have done pretty well. The closest company that resembles GMXR is Panhandle Oil and Gas (NYSE:PHX), which produces both oil and natural gas, is involved in the same region as GMXR, and has similar market capitilization. That company produced a surprise estimate of 1900%. Another close company did miss estimates, but it has struggled to pull profits and reduced its losses exceptionally in the past quarter. That company is Petroleum Development Corp. (PETD). Overall, independent oil and gas has been surprising a lot of estimates. GMXR’s EPS estimate is to hit 0.09, which be only a one-cent gain quarter-over-quarter.

Estimates came into low, especially considering the rise in natural gas prices in the final quarter of 2009. Natural gas went from $3 per MMBTU in Q3 to $6 by the end of Q4. A company with good natural gas exposure could really improve on those numbers, and GMXR has significant natural gas exposure. The EPS estimates on PHX were just way too low, and the company blew them away, citing that the stabilization in natural gas prices was extremely helpful.

Panhandle’s CEO Michael Coffman commented, "Current natural gas futures prices point to an average realized price in the $5.00 - $5.50 range during 2010, which is equivalent to the prices used to develop our 2010 capital and operational program and should allow us to have a profitable year."

This comment is good news for GMXR. Another interesting data point that I found that still has not led me to the motherlode was the correlation in growth in EPS estimates between GMXR and PHX that have been very similar over the past five quarters. The companies have seen similar growth in estimates, and if GMXR can come even close to the type of results that PHX was able to turn would be great. They should definitely be able to raise one penny. Close competitors rose on average 11 cents quarter-over-quarter. That information makes me very cozy.

But here is the motherlode: One quarter ago GMXR reported a quarterly loss EPS of -7.27, with a miss of -12216.7%. The profit the company will have will be what the writers all talk about tomorrow because of the huge gains they are going to make year-over-year. I think GMXR will be a pretty outstanding move and buy. I think we can see some pretty big gains when all is said and done.

That is why I am not too nervous about the gains the stock has made today, because the stock should have major movement tomorrow. The technicals are also really outstanding for GMXR. The stock is about 40% off its 52-week high, and the stock has narrowing Bollinger bands, which means that the stock is ready for a break out… which is going to be the upside.

Entry: We are looking to get involved at 10.25 - 10.35.

Exit: We will be exiting GMXR tomorrow morning after earnings report.