Shares of ATP Oil & Gas Corp (ATPG) could be one of the most volatile on the market. The stock recently hit a 52-week low and it now trades for a mere fraction of the highs it reached at $16.23 on July 8, 2011. For the past year or so, there has been a real battle between shorts and bulls. With oil prices dropping fast in the past few weeks, shares of ATPG did not take long to hit new lows. This company would have a much better chance to succeed if oil prices remained elevated. Some of the bears point out the high debt levels at the company: It has about $225 million in cash, and around $2.15 million in debt. If the company was consistently reporting profits, the debt level would not be so alarming to some investors. However, the company has been posting losses and some analysts expect it to continue posting losses for the next couple of years.
The stock recently surged on news that the company is suing the U.S. Government for about $68 million in damages, because of the suspension of drilling in the Gulf of Mexico after the oil spill in 2010. I agree, the U.S. Government mishandled the aftermath of the oil spill, and it caused needless economic damages to companies like ATP. The company seems to have a case for damages and the response from investors was positive as the shares rallied about 30%. However, this rally may not last for long because it could simply be a short-covering rally rather than anything that is sustainable in the long term. According to shortsqueeze.com, this stock has about 20,680,000 shares short. Based on average daily volume of about 1.5 million shares, it could take over 13 days of volume for shorts to cover. It might not be long before shorts are back in control. With losses mounting and oil prices trending down, this stock could remain at low levels for the next few months. It might seem too early to be considering tax-loss selling but the fourth quarter is just about 3 months away. Since ATPG shares have resulted in losses for many investors this year, this stock could see heavier-than-normal selling pressure in October to December, as investors sell in order to harvest tax losses. Because of this, and for other reasons, it might make sense to avoid "bargain hunting" in the stock now. This company appears to be a higher-risk way to play oil, so investors who want to get involved should consider being patient for what might be a year-end bargain. Investors who want to put money to work in this market in cheap oil stocks should consider shares of none other than BP PLC (BP). It is working hard to overcome challenges that came as a result of the oil spill, but the claims seem manageable, and the company is reporting solid profits. BP also pays a very generous dividend yield at close to 5%.
Key Data Points For ATP Oil and Gas From Yahoo Finance:
Current Share Price: $4.46
52-Week Range: $3.68 to $16.23
2012 Earnings Estimate: a loss of $3.86 per share
2013 Earnings Estimate: a loss of $2.19 per share
Key Data Points For BP PLC From Yahoo Finance:
Current Share Price: $40.24
52-Week Range: $33.62 to $48.34
Dividend: $1.92 which yields 4.9%
2012 Earnings Estimate: $6.06 per share
2013 Earnings Estimate: $6.09 per share
Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I am long BP.