Harvest Natural Resources, Inc. (HNR)

ValueArbitrage (98.95) Submitted: 9/7/2008 12:09:59 AM : Start Price: $9.95 HNR Score: -34.26

HNR represents a compelling opportunity to invest in an asset and cash rich company that can easily double in the course of the next year, with the potential to triple over the next couple. At today's price this business trades at an enormous discount to its current NAV despite the waterfall of revenue soon to fall strait to the bottom line, and should provide outstanding risk-adjusted returns with minimal downside for patient long term investors. Current concern over the potential nationalization of it's venezuelan assets is overdone, and more than reflected in today's price.

This company has numerous levers at its disposal to drive returns. A few of these levers include...

A production ramp (of roughly 25%) - over the next 12 months that should produce marginal revenue yielding high cashflow as most of the revenue increase will fall strait to the bottom line. Over the next year HNR's profit generating capabilities should get considerably stronger.

Potential asset sale's - are another strong lever that would likely unlock significant shareholder value. If completed at prices commensurate with the recent Petrofalcon/Anadarko transaction, the stock would likely double. The sale of the entire company due to the stark discount between public and private market values is another possible outcome

Potential buybacks - which if executed at these levels would be enormously accretive, further juicing returns.

In conclusion...

With more than $5 in net cash (currently nearly 50% of its market cap) sitting in the US, investors are effectively paying $4 for $16 (a very conservative estimate) of HNR's current VZ assets, which in and of itself provides serious downside protection. New fields in Venezuela and the other exploratory projects are not included here, and are likely to provide additional upside optionality. Head's I win, Tails I don't lose much