Could Northern Oil and Gas, Inc. Be the Next Penny Stock Winner?
No matter the reason, there’s a whole new market for penny stocks after the breakdown in oil prices and precious metals to a lesser extent. In fact, some of the best values in the energy industry today could very well be penny stocks.
It started with gold and other precious metals; natural gas prices were already pretty low, after which the price of oil just cratered. Along with it were some very good domestic energy producers with lucrative properties and solid business plans—in an environment of $100.00 oil.
But now, a lot of good companies fall under the penny stocks category because their financial metrics have changed. A number of these companies are liquid, highly-tradable securities. There’s value in the sector now where it didn’t exist just a few years ago.
Where is the Big Money in Penny Stocks?
The catch, you might wonder? That’s an easy one. These stocks aren’t really going to turn around materially without a commensurate move in oil prices.
But bottom fishing can pay off. It’s a risk-capital strategy that requires a speculator to be patient and diligent, as well as a firm understanding that penny stocks are penny stocks for a reason.
A lot of investors have stuck with their gold and silver holdings. These types of commodities are good hedges in an uncertain world.
I really see the breakdown in oil prices as being one of the most attractive turnaround opportunities in the stock market over the next few years.
Countless domestic producers, whether large- or small-cap, have cut back significantly on their capital expenditures and drilling.
It’s going to take time, but eventually the supply/demand equation is going to balance itself out, even with Middle East oil opening the taps.
Previously a solid mid-cap trader, Northern Oil And Gas, Inc. (NYSE:NOG) is basically a non-operating participant in the North Dakota Bakken and Three Forks region.
The company controls around 178,000 acres in the North Dakota/Montana Bakken and Three Forks area and has participated in 3,300+ gross wells (in the second quarter of 2015) with leasehold interest in each drilling unit operated by partners.
Right now, Northern Oil and Gas has about 2.9 million barrels of oil hedged at $90.00 a barrel for the next four quarters. That’s a good amount of breathing room.
The company’s 2015-second quarter production averaged 16,610 barrels of oil equivalent (BOE) per day, up about eight percent over the same quarter last year.
Granted, Northern Oil and Gas stock has been hammered by the correction in oil prices. Total revenues in its most recent quarter came to $41.0 million—that’s down from $75.0 million from the same quarter last year.
Northern Oil and Gas and many other junior domestic producers have been incurring non-cash charges related to their properties. This caused a major loss for the company.
But even though the company has a lower capital expenditure budget for the bottom half of this year, productivity is expected to rise.
In any case, this particular company has fallen into the category of penny stocks; it’s trading just under $5.00 a share and is highly liquid on the stock market.
Here’s the Bottom Line on Northern Oil and Gas
Timing, as they say, is everything. And it’s one of the most difficult things to get right in the stock market.
I suspect the oil price correction will last well into 2016. But at some point, it’s going to turn and today’s penny stocks within the sector could easily become tomorrow’s growth stories.