Skip to main content

Time to buy -- little known small cap could be Gulf of Mexico value stock

I've been dabbling with applying some of our Swing Signals algorithms to weekly data. This past weekend I came up with an interesting stock that generated a Strong BUY signal. The company is Energy XXI (Bermuda) Limited (EXXI).

Background --

The company engages in the acquisition, exploration, development, and operation of oil and natural gas properties onshore in Louisiana and Texas and offshore in the Gulf of Mexico.As of June 30, 2009, it had proved reserves of 53.1 million barrels of oil equivalent, as well as operated or had an interest in 274 producing wells on 148,784 net developed acres.

With all the negative publicity around companies that drill in the Gulf of Mexico, it's a bit of a surprise to see a company like Energy XXI beginning to register gains in its stock price. What seems to be happening is that investors are beginning to discriminate between deep water drillers and shallow water drillers. Energy XXI drills in waters only 100 feet deep. The company tends to drill very deeply into the continental shelf but the fact that the waters are not deep lessens the chances of the kinds of accidents that can happen in deep water, reduces complexity and also allows the blowout preventer (amazing that we all know what that term means now) to be located on the rig itself rather than a mile below the surface of the ocean. Costs at these ocean depths are much cheaper than the costs incurred to drill in deep water and the company is reputed to have tapped into supplies of natural gas that could amount to hundreds of trillions of cubic feet gas equivalents.

The financials --

With a market cap of $877.92M the company is considered a small cap stock. It's PEG is only 0.66 and its Enterprise Value/EBITDA ratio is only 4.6. Both of these values are deep in the value range and the price-to-book and price-to-sales numbers also suggest the stock is not over-priced.

The company was free cash flow positive in its most recent quarter. Cash flow yield as calculated at Trade-Radar was 30% which is pretty darn good. Revenue in the most recent quarter was up strongly on a sequential basis though earnings were not. Return on equity is over 13% and return on assets is over 6%. Taken together this is good but not great.

Beta of 2.64 implies that investors could be in for quite a ride. Now that markets seem to be rallying, that could be a real advantage for holders of the stock.

The chart --

Here's why we think the stock could be a Strong BUY from a technical perspective.


Williams %R and Slow Stochastics show a BUY signal in progress. Bollinger Band analysis implies there is a good chance that a real reversal is underway. A powerful indicator that a good bounce is happening is the fact that the 50-week moving average is still intact and pointed nicely upward.

Conclusion --

This small cap shows there are values available in Gulf energy companies. This could be a case of investors throwing the baby out with the bathwater. Negativity around Gulf of Mexico energy companies has tainted this stock but their story is quite different from that of BP, for example.

The potential holdings of Energy XXI are attra ctive and the level of risk is much lower than that of the deep water drillers.

With the chart showing a bounce in progress, this is a good time to consider the stock.The numbers suggest the company is far from over-valued and as the economy slowly strengthens, the fortunes of energy companies will likewise improve. Looking at the chart and the financials, it's possible to project that this stock could reach $35 to $40. With the stock closing at $17 and change today, an investor could realize a nice profit over the next six months to a year.

Disclosure: no positions

Comments

Popular posts from this blog

Running TradeRadar on Windows 7 and Windows 8

Development of the original TradeRadar Stock Inspector software was begun back in the days before Windows 7 and Windows 8 were available.

As these newer versions of Windows have become more popular, we have heard from some users that they are having problems installing and running TradeRadar on their newer PCs.

The good news is that TradeRadar will work just fine on Windows 7 and Windows 8. All you have to do is adjust the Windows Compatibility Settings to ensure TradeRadar runs as intended.

It is recommended that you can apply Compatibility Settings when running the initial installation; however, it is also possible to apply Compatibility Settings after the program has been installed.

Prior to installation
After downloading the install program, go to the folder where you have stored the TradeRadarStkInsp_7_Setup.exe or TradeRadarStkInsp_7_PRO_Setup.exe executable. Right-click on the executable file and select Properties. Click the Compatibility tab. Adjust the Compatibility mode to …

Durable Goods report for Sept just so-so but Computer segment is on fire

The Durable Goods advanced report for September 2011 was released on Wednesday.

I like to dig into the Durable Goods report because it can be useful for seeing how tech in aggregate is performing and how the sector may perform in the future. I always focus on two particular measures: shipments and new orders. Let's see how it played out last month.

Shipments -- 

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how September shipments looked for the overall tech sector:


Results for the overall tech sector were a bit weak but take a look at the next chart which tracks the Computers and related products segment:


Results here were actually quite good and, to make things even better, the previous month was revised upward.

N…

Alert HQ has moved!

End of an era!

This site was started way back in 2006/2007 to showcase my blog posts and the Alert HQ buy signals and sell signals. Alert HQ grew to include other kinds of stock alerts including Swing Signals, Trend Busters, Trend Leaders, Cash Flow Kings and more.

In the meantime, I built a sister site, TradingStockAlerts.com and I started using some of the same Alert HQ content over there. As a result, I am discontinuing the Alert HQ data here at Trade-Radar.com

The good news, however, is that all the Alert HQ signals and stock screens are still completely free. In addition, the pages have been enhanced so that you can hover over a stock symbol and a small chart will pop up so you can get a quick look at the stock's recent price action. If you click on a symbol it will take you to a page with plenty of financial and technical analysis information (still free!) as well as a larger chart that you can play with in terms of adding or deleting indicators, moving averages, etc.

Click …