In this economic environment, it's fun to look around the market and try to find extreme bargains. I’m not talking about a large-cap stock that has traded down 30% and is now only 10% off the highs. I know some in the financial mainstream like to talk about those as an extreme bargain but they aren’t in my opinion. No, I’m talking about something with truly asymmetric risk. By asymmetric, I mean if the company survives, it could go up 30x over a 5 to 10-year time horizon, but if it doesn’t, then it could go down 90 to 100 percent.
Everyone knows oil was absolutely demolished in the Feb/Mar market crash and based on its performance since then, it's beginning to make me think we may have reached a low in the oil price for the long term. Does that mean that I think oil is going straight to $60/barrel? No, I don’t. I think it could rebound to $40 and trade in the 30 to 50 dollar range for the next 3 to 5 years.
Looking forward to a higher oil price, I think it’s important to begin to choose the horses you want to back now, in case oil continues going up. If you find a company you believe in, and oil prices go down again, you know you can step in and purchase more.
As I was looking around, I came across a company I’ve been familiar with for some time. That company was Northern Oil and Gas and it was trading at 80 cents a share. I knew I had to investigate. By investigating... I wanted to understand the risks that Northern Oil and Gas is facing over the coming years so I can make a projection on whether it survives this crisis.
