portefeuille

EV38 (99.94) wrote:

A well-known oil sands stock on the TSX that spent years in the $20 range before getting into financial trouble last summer. Not a lot of oil sands plays out there that are still 90%+ off last years highs so I figure this one is a great choice.
Right now OPC on the TSX is my second biggest holding comprising 28% of my portfolio (#1 has actually become nearly 50% of my portfolio due to a huge run up - I know I know, diversification - but that's another topic).

Anyways there are several very good reasons why OPC is my #2 holding right now.

1. After a quick pop from penny stock status to over $4, it has been slammed to the $1.50's during the summer's market run because of financing they did at very unfavourable terms for prior shareholders. Basically it diluted the company's prior shareholders by nearly 50%. My hypothesis over the poor stock performance to a level below the offering @ $1.75 is that prior shareholders are bitter and are selling to forget about it, and that the huge float created an overhang of shares by the institutional investors and they are just trying to clear their inventory out. While dilution is not good news, this at least guarantees them cash until the end of 2010. They will not become the next Oilexco and 17 months is a long, long time for its business climate to change. Meanwhile as the inventory and disgruntled shareholders dry up, it could pop at any time.

2. Opti is a Canadian oil sands play and has one main property with Nexen. Most recent news on the property has been bad or mediocre and the combination of this factor with the issues in reason 1 has slammed the stock price to $1.50's, BUT the stock has spent several years in the $20-25 prior to last fall's market plunge. Even taking into account the dilution, this is a pretty strong ten bagger play on any positive news coming from their holding. One thing I have learned playing miners is to never discount a company when its down unless bankruptcy is imminent, nor get too high on one when it spikes up unless there's serious reason to believe it will be taken over.

3. Given its recent price performance, bad news but also significant balance sheet improvement, I believe OPC is a great play in this market. Given my above reasons I think OPC would be very hard pressed to tank further but has just as much if not more upside potential than any other stock that has recently run up. I've sold a lot of my holdings that have run up too much IMO and have parked it into here. The way I see it, either way I win. It has the as much upside potential as the next stock, but if the market does turn down, the things I sold will likely get slammed but OPC stays flat, and I can trade back into those plays at favourable prices. There's more than one way to take profits or to play an expected market pullback without putting money on the sidelines or shorting.

Disclaimer: As I have recently earned the CFA designation, I just want to clarify that everyone should do their own due diligence on this or any recommendation before adding it to their portfolio. This is not an official recommendation as I don't know everyone's risk tolerance or financial situation. Don't want to say anything that could put me in harm's way, plus there's a certain novelty attached to having such disclaimers after 3 grueling tests and 4 years of work experience. I'm sure it'll wear off eventually!