Magnum Hunter Resources Corporation (MHR) is a high-potential company whose shares have been on a roller-coaster ride in 2012. The volatility in this stock can be used to the advantage of individual investors if they buy on dips and either sell on a rally for a quick trading profit, or hold and build a position for the likely long-term potential of much higher prices.
Magnum Hunter shares appear to have high potential for gains for a number of reasons. First of all, CEO Gary Evans is an experienced oil executive and he has had a successful track record, which has led to strong returns for shareholders in the past. Secondly, the company has oil and gas projects located in the resource-rich Marcellus and Eagle Ford Shale areas. In terms of current production, it has about 51% oil exposure and 49% gas exposure. Like many exploration and production companies, Magnum Hunter is increasingly focused on expanding oil production, which could lead to higher profit margins.
To be sure, a smaller oil company is going to usually be a higher risk investment, but the rewards could be well worth it. Buying a well-established oil company like Chevron Corporation (CVX) or ConocoPhilips (COP) might provide stability and dividend income, but the chances of those stocks doubling even in the next several years is not very likely.
Low-priced stocks can make big moves and even double in a short time. One of the best examples of this could be shares of Sprint Nextel Corporation (S), which was trading around $2.50 per share in June, and have since gone on to about $5. Jim Cramer was calling for investors to buy Sprint shares well before the big rise, and in the past he has also taken interest in the shares of Magnum Hunter.
Earlier this year, Cramer interviewed the CEO of this company, and terms like "drilling factory" were used to describe this company, thanks to it's strong production and reserve growth. The interview also pointed out that the last oil company headed by CEO Gary Evans saw its shares hit about $20, and was sold to Cimarex Energy (XEC) for about $2.2 billion in 2005.
If the CEO can repeat those returns for Magnum shareholders, this stock could become a multi-bagger over time. If the stock is able to rise just a little beyond the current 52-week high, it would just about be a double for investors buying around $4. A couple more points to consider:
1. Owing to its rapid growth goals and recent acquisitions, this company has needed additional capital. Magnum Hunter recently raised capital through a secondary offering at $4.50 per share. This has caused the stock price to decline for the past few weeks; however, the additional shares seem to be more fully absorbed now and the stock is almost back at the offering price of $4.50.
2. Magnum Hunter shares were recently upgraded to a strong buy by analysts at Zacks Investment Research. The shares are now ranked #1 by Zacks, which is reserved for stocks with the best potential.
Key Data Points For Magnum Hunter:
- Current Share Price: $4.30
- 52-Week Range: $2.33 to $7.71
- Dividend: None
- 2012 Earnings Estimate: Loss of 14 cents per share
- 2013 Earnings Estimate: Profit of 19 cents per share
- P/E Ratio: N/A due to losses
Data is sourced from Yahoo Finance.
Disclaimer: No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MHR over the next 72 hours.