3 INVESTMENT OPPORTUNITIES WITH EXPLOSIVE CATALYSTS
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You can't have an investment without a catalyst. A catalyst keeps a stock that you intend on holding for the intermediate term from becoming a memento that is passed onto your grandchildren. The lack of a catalyst in a "cheap" stock keeps your money tied up in an investment that seems to have all the qualities you desire but suffers from depression that doesn't allow the stock to do anything but sit in place.
Catalysts can come in the form of macro influences, restructurings, shareholder activism and management changes just to name a few.
The following are three companies with catalysts that provide the fuel necessary to reach their full potential:
PSTR - Given the enormous spike in natural gas investments by all of the major oil/gas companies, it would be prudent to assume that there is a world of potential in small to mid-cap natural gas related companies over the long-term. Aggressive investors should be looking for small-cap natural gas stocks that have the potential for significant appreciation that will eventually make them attractive buyout targets for larger companies within the energy field.
PSTR deals almost exclusively in natural gas. The company has not taken part in the ascent that most other natural gas companies have experienced over the past 12 months due primarily to some debt and litigation issues. During the second half of 2010 energy investor Thomas J. Edelman, through his newly formed fund White Deer Energy, injected a significant amount of capital into the company allowing for a restructuring of debt and renegotiation of credit agreements.
PSTR is generating a significant amount of cash flow from current operations. For 2011, the company is allocating $52 million towards capital spending, of which 100% will be funded with internal cash flow. Company management has been aggressive in drilling new wells and pursuing new leaseholds in order to further drive company growth. The company owns thousands of miles of valuable pipeline for the transport of natural gas. As natural gas growth occupies an increasing portion of energy infrastructure the value of the pipeline will prove an increasingly attractive asset.
The eventuality for PSTR is strongly tilted towards the company being acquired by a much larger company. In the meantime, it seems company management is doing everything right in order for the stock price to appreciate due to an increasing attention from investors towards small to mid-sized natural gas companies. I currently own PSTR for managed accounts and have written an in-depth research report about the company available here.
GSIG - GSI Group is a company that was on the verge of being plundered by an incompetent management. Just one year ago shareholders were wondering whether stockholders would see their shares dissolved as a result of a bankruptcy filing. An activist investor stepped in, formed an equity committee, fought a brilliant court battle and preserved shareholder value. GSIG survived and has appreciated greater than 500% off its lows.
Even during the bankruptcy battle, GSIG continued to grow revenues, cash flows, products offering and patent filings. The company has a diverse group of technology offerings ranging from semiconductors to laser technology.
One of the most important factors investors are overlooking is that 2 years of performance, share appreciation and history is missing from the company as a result of the battle with former management. This has caused the shares to languish, remaining undervalued despite a complete transformation of the company over the past 12 months. Debt issues and management issues have been resolved. The market is acting as if a black cloud continues to linger. In this case, the market is wrong.
BEXP - Brigham Exploration is a play on the Bakken shale. For those unfamiliar, I wrote a brief summary about Bakken a few months back here. Estimates have varied widely about just how much oil/gas the shale contains. The one constant has been that oil/gas companies have been scrambling over the past few years to buy up acreage in the area. It is fair to assume that if estimates were exaggerated, these companies would be the first to play it cautiously. It has been quite the opposite in fact. As technology has allowed these companies the luxury of recovering oil/gas in formations that would have previously proven impossible, the stampede to get a piece of the Bakken pie has only increased.
When I look at Bakken plays, I not only see opportunity because of an increasing price of oil. I see opportunity in a potential exponential rise in the value of land should the price of oil continue its bullish ways. The companies that own vast amounts of acreage in Bakken will see their share prices rise as land prices in the area continue to grow in value.
BEXP owns nearly 400,000 acres in Bakken. The company has the liquidity to continue financing exploration and increased acreage in the region. As a result, BEXP has managed to grow production and revenues by greater than 100% year over year.
Crude oil prices will continue to climb over the long-term despite last weeks steep sell-off. This will create support for oil/gas companies. The odds are heavily tilted towards a blow-off run in energy prices taking place sometime over the next several years. Trends in commodities rarely end with a whimper, much preferring a bang that leaves speculators heads spinning. Crude oil will reach that point. Companies like BEXP will be prime beneficiaries.
