While I'm no fan of Hyperdynamics (NYSE:HDY) fiscal statements, I do recognize that HDY is a momentum stock that has some potential to reward investors via their vast untapped oil reserves in Western Africa. I have often written critical articles on HDY in the past and recommended investors short the stock when the name was trading for $5 or $6 a share last year.
A year after my piece was published in which likened HDY to "Hydra Offshore" from the movie Wall Street 2, the stock is now sitting at $1.36 and actually looks tempting for a quick speculation using a tight stop loss order at, say $1.23 or so. While I am certainly not endorsing the company as I am not up to speed on their development, I do know a little about the business model, strong upper management, and incredible reserve potential. That said, HDY operates in Western Africa where the political environment is about as easy to get your arms around as barrel of West Texas crude from an investment analysis standpoint.
Hyperdynamics is compelling because of its off-balance sheet asset value, potential, and reserve estimates. Additionally, the stock is trading some 85% cheaper than it was just a year ago, which makes the name a potential rebound candidate if their strategy pays off.
While the political environment in Africa is something to watch, we think the locals are just as interested in exporting oil as HDY is in operating profitable wells. From a technical analysis perspective, HDY looks interesting with an oversold RSI and a MACD bullish crossover. There is also a gap down on the chart from $2 to $1.50 that could be filled if some things go right for the company in the short run.
While Royal Energy (NASDAQ:ROYL) is similar in potential, we think shares have run too far too fast for now and think the potential for a further decline in shares is possible over the next couple of weeks. ROYL is a name we analyzed as a short play back in early 2011 when it was trading in the $7 range. Shares are once again trading in a volatile fashion and the company still has little in the way of GAAP assets or earnings. With a PE of 285, a price to book and price to sales of around 5.5X, ROYL is a pretty speculative play which can earn traders some money -- in this case, it's a short but if the shares get cheap enough this could also have some potential as HDY has right now.
From a technical analysis perspective, ROYL looks ready to roll over and head lower. The RSI is overbought and moving lower, while the MACD is in the extremely overbought range and is in a bearish crossover -- I would look to the $4.50 range to book profits and would set a pretty tight stop at $5.25 or so, or 5% above current prices.