Waiting for the Overshoot.
February 26, 2013
– Comments (11) |
RELATED TICKERS: AXAS
, SD
, NES
One thing I have learned in 7 decades of observing the actions of mankind, is that almost everything we do, we tend to "overdo".
This applies to both positive and negative actions.
Someone decideds that "something" needs to be done about a "problem", either real or perceived, and they set out to make it happen.
It usually starts out with relatively small steps, with the hope of making it "better", then over time, it takes on a life of its own (with others joining in), and it goes way past what was actually needed in the first place. Often with unforseen consequences, and sometimes disasterous effects.
The "market" is not immune to this type of action, and in times of "economic stress", it tends to become exagerrated.
This is what I refer to as the "overshoot".
This is when the price of a stock starts to go in a certain direction, either positive on "good news", such as earnings and revenue "beats", and good "future forecasts", either by the company or by analysists; or in a negative direction on "bad news", which tends to be more easily propagated.
This then results in stocks of a particular company, or a sector, becoming either "overvalued" or "undervalued", usually in the "short term".
While it is difficult, (some would say impossible) to determine the top or bottom, either for a certain stock, or the market as a whole, you can use the idea of "overshoot" to get in at the "right price", more often than not.
An example of this is the small oil and gas company, AXAS.
This company got "blind sided" in 2009, when the plan to take AXAS Partnership public went down the tubes. The current AXAS, which was then "known" as AXAS Petroleum, was the general partner, and had no debt of its' own.
With the "great crash", and the total collapse of the firm that was to underwrite the IPO, AXAS had to start over.
It has taken a great deal of time, with many "starts and stops" to get to where they are today, and things have not always gone the way they planned, but overall, it has been positive.
Insiders own about 13% of the outstanding stock, and institutions own about 43%. There was a recent move by one of the institutional holders (not the largest or the longest term) to try and get management to take steps to get the share price up closer to their opinion of what the "true value" should be, (in the $4-$5 range).
I do not expect that they will have a "great" Q4 report, but it should not be a bad one either. I do expect that over the next couple of quarters, they will start to show much better results than many expect.
While there is a "hard core" group of shorts who tend to drive the share price down in the short term, this has recently been compounded by negative news surrounding other companies in the energy sector, both exploration and production companies, as well as service companies.
Look at SD, HEK, CHK, HK, etc , all of which I am long on, except for CHK.
The over all market action of the past few days has not helped, and the relatively light volume has made it fairly easy to control the action of AXAS.
They currently have a market cap of about $185M, with proven reserves of $262M, and probable reserves of another $60M to $70M.
They do not show sufficient working capital, but use their "revolving credit facility" to cover this need.
Their overall strategy is to concentrate in two areas, the Baken, and Eagle Ford, and are using a "manufacturing" like model to bring up their earnings and cash flow. They are also selling off non-core assets and paying down their credit line.
AXAS is now in a "very oversold" range, and is likely to drop even further as we await their mid-March results. In my opinion, this provides an overshoot opportunity, to either initiate, or add to your position for the longer term.
There has been speculation that they may be a buy out candidate in the $3 to $4 range, but I hope this does not occur. I expect that they have the potential to become an $8 to $10 stock in the next couple of years, if they are not bought out.
This is being presented for your consideration, after doing your own DD, and anything can happen over time, negative as well as positive. In my opinion, this could be a good opportunity to take at least a small position, and see how it plays out.
I apologize for any typos or incorrectly spelled words, but I think it is understandable.
Good luck with your investing, whatever you choose to do.
The above is JMO and worth exactly what I am charging for it.
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