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Hercules Offshore: What a Difference Six Weeks Can Make

Hi User 34665,
First of all, one needs to be accurate. My first recommendation for HERO was on June 27th, when the closing price was $33.13. My second recommendation that HERO had some more unanticipated weakness than I had expected was on August 8th, when the closing price was $28.19. This represents an approximate 15% loss. It was an incorrect recommendation, which is why I wrote my second article. HERO went on to close at a low of $25.36 on September 10th. HERO closed at approximately $27.80 on the date of my last article on September 20th.

While the price of natural gas has continued to decline, due to record supplies and the fact that we are still in a shoulder season, it is reasonable to expect that over the long term it should increase in value. Natural gas, like most commodities, should increase in value over time.

I believe that as natural gas reserves are drawn down, HERO’s margins will improve and a greater percentage of their rigs will come on line. I may or may not be right. I am comforted by the degree of insider and institutional buying, who also obviously expect that HERO stock will increase in value.

If you are a good investor, you don’t expect to be right all the time, you just wish to be right more often then you are wrong. (I have an annualized return of approximately 25% a year, for a number of years. I must be doing something right.) But an investor also needs to be willing to admit when his buys don’t work, at least at that moment.

Investing is challenging and at times, humbling. I wish you the best of luck in your investing.

XTO Energy: Portrait of a Super Stock

Hi Leo,
Thank you for your question. You are dealing with two very different companies. One has an enterprise value of almost $24 Billion dollars and has a 15 year history. The other is a small-cap with an enterprise value of just over $200 million dollars. The profit margin on NGAS is 1.58%; the profit margin on XTO is over 33%. NGAS has a quarterly revenue growth of minus 34% and XTO has a quarterly revenue growth of 25%. NGAS is beta is approximately twice that of XTO. I would regard NGAS as a moderately volatile small-cap with significant downside risk. XTO on the other hand is a small Large-cap with a long history of stability, good management, increasing revenues and increasing reserves. I hope that answers your question.

Hercules Plus Todco Equals One Powerful Company

RAVERNON,

Thanks for the comment and question. You are correct in pointing out the large short position in the stock. I estimate the short position represents 31% of HERO's float.

My opinion is that the arbs's have decided to have their cake and eat it too. I mean that they hope to drive the price down over the short term, buy the stock at a "cheaper" price, and then make money on the long side. I don't think there is any risk of the Todco acquisition falling apart.

If you have another view on the topic please let me know.

Thanks!

David L. Wolf