Ivanhoe Energy: The Highest Risk/Highest Reward Stock In My Portfolio

| About: Ivanhoe Energy, (IVAN)

Regular readers of my columns know that I am a conservative investor that primarily shoots for singles and the occasional double. Some of the biggest positions in my portfolio are stodgy blue cap names like Microsoft (NASDAQ:MSFT) and Teva Pharmaceuticals (NYSE:TEVA) that are selling at less than 10 times forward earnings, have great balance sheets and decent dividend yields. I try to balance the long side of my portfolio with short positions on stocks that I believe are seriously overvalued and are hitting technical resistance such as LinkedIn (NYSE:LNKD). However, I do reserve a small portion of portfolio (5%) for highly speculative stocks with solid catalysts. I fully expect most of these bets to not work out, but the occasional five to ten bagger will make this strategy work out well in the long run. Ivanhoe Energy (NASDAQ:IVAN) meets my high risk/high reward criteria and it is the only $1 a share stock in my portfolio.

7 reasons IVAN is a great speculative buy at under $1 a share:

  • The company is showing rapid revenue growth. It produced revenues of $22mm in FY2010, should have sales of $39mm in FY2011 and analysts project revenues north of $58mm in FY2012.
  • It has a large deal pending to sell some of its assets in China to provide funds to develop its other core properties.
  • The stock looks to be in a bottoming process and is poised to cross over its 50 day moving average (See Chart)

(Click to enlarge)

  • In addition to its energy assets, Ivanhoe has a potentially lucrative technology to turn heavy oil into more profitable light oil.
  • The stock is selling at just 2% over book value. In addition, although operating cash flow is negative; it is improving.
  • The consensus price target for the two analysts that cover the stock is $2 a share, or double its current price.
  • The stock was selling for north of $3.50 a share less than a year ago. Given this and the reasons above, this makes IVAN a high risk investment worth considering for very aggressive investors.

Disclosure: I am long IVAN, MSFT, TEVA. I am also short LNKD