On Tuesday, I took a moderate new position in Transglobe Energy (NASDAQ:TGA) at $3.85. The stock has been a total dog over the last year, but it is beginning to show signs of putting in a bottom. At its current valuation, the stock looks to be very cheap, and has some excellent exploration potential on top of its already profitable production base. I am currently working on some other things at the moment, but will publish a larger article about the company in the coming days. In the meantime, here’s a quick list of why I like the stock.
1) Strong balance sheet with no debt.
2) A rock bottom valuation with a P/E of 9x trailing eps.
3) Production expected to expand by about 6-9% in 2007.
4) Very attractive portfolio of exploration holdings in Yemen and Egypt (most of their production currently comes from Yemen). Egypt exploration has just gotten underway.
5) The company recently announced a buyback of up to 10% of the total shares outstanding.
Transglobe recently announced the plugging of a dry well in Egypt, and the stock has been weighed on as a result of the news. However, the stock has built a solid historical support level around the $3.80 level, and it doesn’t look likely to go much below that with the buyback in place. At some point, continued high oil prices and perhaps some positive exploration news will have to change sentiment for this company, and current prices will look very attractive when that time comes.
TGA 1-yr chart