Bullish on Encore

Jun.11.08 | About: Erickson Air-Crane (EAC)

History may be repeating as buy-recommended Encore Acquisition Company (NASDAQ:EAC) announced on May 21 that it may make a strategic change to catalyze a higher stock price to better reflect the value of its “high quality portfolio of stable long-lived, oil-weighted properties.” The news contributed to an increase of 15% in Encore stock to $66 a share last week taking it to a McDep Ratio of 0.91. On our vision of $150 oil in 2010, Encore’s Net Present Value [NPV] would be $162 a share (see Meter Reader, October 16, 2007).

Encore’s sense of greater worth is expressed by the Chief Executive Officer whose father, Encore’s chairman, announced 28 years ago to the month that Southland Royalty Company would be splitting into three pieces. Southland stock increased about 160% in the six months leading up to the distribution of units of San Juan Basin Royalty Trust (NYSE:SJT), a buy recommendation today, and Permian Basin Royalty Trust (NYSE:PBT), also in our weekly income stock coverage.

Cautious investors can hedge the bullish potential we outline with timely rebalancing to recommended weightings. Meanwhile near-month oil price breached the 1.39 times moving average mark for one day before returning to the upper limit that is advancing about $0.30 a barrel a day.

Originally published on May 27, 2008.