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Michael Filloon, Split Rock (390 clicks)
Oil & gas, small-cap, research analyst, growth at reasonable price
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Oil's current valuation is a slippery slope. No one knows when the price will come down. One side will argue the peak oil theory. The other side will tell you that speculators are to blame and the price run-up will be short-lived.

The problem with the media is they are trying to sell you a magazine, and the truth relies solely with the individual. With oil, it comes down to supply and demand. OPEC is milking it a little more than they should, trying to get as much as they can out of their supply. They announced that they will be increasing production to 9.7 million barrels of oil per day and that they will be able to increase production to 15 million barrels in 2 years.

This is all very negative for oil in the long term. These numbers wouldn't have been so convincing had it not been that OPEC even outlined where the production was coming from. Even with this news the oil market increased all day yesterday. When markets are this shaky it is dumb to jump in. Let the market find solid footing first.

The way to play an unsure oil market is through natural gas and oil exploration and production companies. My XTO call on theupdown.com is up 18% in the last 81 days, GMXR is up 67% in 48 days and MMR is up 7% in 60 days. All of which have been good, and should continue to be good even in an oil pullback if you are in for the long haul.

It looks as though the Fed is going to let supply and demand work. As the price of oil increases, demand should decrease. In this event, there is even more reason to be bullish on natural gas. Without a hike in rates because of a terrible housing market, commodities still look good going forward. This may even help oil in the short term, until consumers pull back their usage through vehicles with higher mpgs and by driving less. General Motors (GM) is already offering 0% for 72 months on most of their vehicles, which is unheard of at this time of year. The current market looks horrible for disposable income and even oil can be cut back on.

PetroHawk (HK) looks to be a good investment for those interested in growth. Their assets are concentrated and well placed. There is low risk in these sites coupled with high reward potential. Most sites are low cost, with improving margins. Many of their assets were bought on sale and have appreciated significantly since their purchase.

They have increased capital expenditures to further their development and the liquidity to pursue future endeavors. Quarter over quarter they have 10% organic production growth. They experienced 25% annual organic production growth in the core areas of their business.

Their cash margins are also very good, and here are their estimates for natural gas prices. With the price at $7, margins are at 73% or $5.09, at $8 there are 75% margins or $6.02. When the price is at $9, 77% and $6.96. $10 natural gas is 79% or $7.89, while $11 is 80% or $8.83. With an average price of $12, operating margins are at 81% and operating cash margins are $9.76 when looking at Mcfe.

It's easy to be scared off by HK as it has a PE of 429. Looking at the forward PE, the stock seems cheap at just 32. Current growth this year is estimated at 44% while next year is 24%. Five year estimates have average yearly growth of over 30%. I would wait for a good pullback on the stock as I think it will get cheap again.

Disclosure: None

Source: Petrohawk: A Play on Appreciating Natural Gas Prices