Stock Trades – Magnum Hunter Resources Corp (NYSE:MHR) and SandRidge Energy Inc. (NYSE:SD) 
Friday, January 31, 2014

STOCK TRADE 1: Buy MHR at market price (approx. $8.20), good for the day. Place a protective stop-loss at $6.00 and a pre-determined sell at $13.50.

STOCK TRADE 2: Buy SD at market price (approx. $6.25), good for the day. Place a protective stop-loss at $4.50 and a pre-determined sell at $10.00.

by Ian Harvey

January 31, 2014

Introduction

Low-priced “cheap stocks” can be a huge source of returns for a portfolio. In fact, the Fidelity Low-Priced Stock Mutual Fund (FLPSX) has managed to beat the pants off of its benchmark indices and produce market-beating annual returns since its inception.

So for investors willing to delve into the world of cheap stocks based on share price, the rewards can be great. In fact, some of the best low-priced jewels are actually energy stocks.

Featuring decent reserves and production along with low share prices, here are two energy stocks for consideration.

Stock 1: Magnum Hunter Resources Corp (NYSE: MHR)

STOCK TRADE 1: Buy MHR at market price (approx. $8.20), good for the day. Place a protective stop-loss at $6.00 and a pre-determined sell at $13.50.

Introduction

Investors in energy stocks looking for the next big thing in shale should focus their research on the “Land Down Under.” New reports have confirmed that Australia could be the hottest place for unconventional shale gas drilling and fracking.

Magnum Hunter Resources Corp (NYSE: MHR) is at the forefront of the movement in Australia.

While it does have assets in the prolific Marcellus and Utica shales, MHR has chosen Australia as its next big focus. Magnum Hunter Resources recently purchased an equity stake in Perth-based New Standard Energy (NWSTF). That investment will help New Standard in the fracking technology department, while providing MHR access to Australia’s gas-rich Cooper Basin.

Company Details

Magnum Hunter Resources Corporation (Magnum Hunter) is an independent oil and gas company engaged in the exploration for and the exploitation, acquisition, development and production of crude oil, natural gas and natural gas liquids, primarily in the states of West Virginia, Ohio, Texas, Kentucky and North Dakota and in Saskatchewan, Canada.

The Company is also engaged in midstream operations, including the gathering of natural gas through its ownership and operation of a gas gathering system in West Virginia and Ohio, named as its Eureka Hunter Pipeline System.

The Company’s portfolio includes Marcellus/Utica Shales in West Virginia and Ohio, the Eagle Ford Shale in south Texas, and the Williston Basin/Bakken Shale in North Dakota and Saskatchewan, Canada.

In January 2014, New Standard Energy Limited completed acquisition of certain oil and gas assets including 5,182 net acres within the Eagle Ford shale play in Texas from Magnum Hunter Resources Corporation.

Earnings

Magnum Hunter Resources Corp. (NYSE:MHR) last posted its quarterly earnings results on Friday, November 8th. The company reported ($0.17) earnings per share (EPS) for the quarter, meeting the consensus estimate of ($0.17). The company had revenue of $73.03 million for the quarter, compared to the consensus estimate of $89.70 million.

During the same quarter in the previous year, the company posted ($0.08) earnings per share. The company’s revenue for the quarter was up 80.0% on a year-over-year basis.

Why Australia

• Australia has the most attractive shale gas prospects outside North America, according to Magnum Hunter Resources, which says it has scoured the world looking for deposits of the gas that has revolutionized energy supply in the U.S.

• The Cooper Basin, straddling the border of South Australia and Queensland states, also has lured investment from Chevron (CVX) and BG Group (BRGYY, BRGXF) ahead of expected shortages of the fuel to feed more than $60B of liquefied natural gas projects in eastern Australia that will ship to Asia.

• MHR recently agreed to become the largest shareholder of Australia's New Standard Energy, which will bring its technical expertise to its planned Cooper Basin exploration program.

Analysts Opinions

Magnum Hunter Resources Corp. (NYSE:MHR) had its price objective hosited by Canaccord Genuity from $8.00 to $9.50 in a report released on Thursday, 16th January. Canaccord Genuity currently has a buy rating on the stock.

Also, Magnum Hunter Resources Corp has been the subject of a number of other recent research reports:-

• Analysts at Topeka Capital Markets raised their price target on shares of Magnum Hunter Resources Corp. from $8.50 to $10.00 in a research note to investors on Tuesday, November 12th. They now have a buy rating on the stock.

• Separately, analysts at MLV Capital raised their price target on shares of Magnum Hunter Resources Corp. from $8.00 to $8.50 in a research note to investors on Monday, November 11th. They now have a buy rating on the stock.

• Finally, analysts at Imperial Capital initiated coverage on shares of Magnum Hunter Resources Corp. in a research note to investors on Wednesday, November 6th. They set an in-line rating and a $8.00 price target on the stock.

Nine research analysts have rated the stock with a hold rating and eight have assigned a buy rating to the stock. Magnum Hunter Resources Corp. has an average rating of Hold and a consensus price target of $7.38.

Conclusion

Already, analysts predict that Magnum Hunter Resources will grow its earnings by roughly 70% this year as its domestic shale acreage takes off. Any additional boost from its new Australian holdings will only sweeten the pot, making MHR one of the top energy stocks under $10.

Stock 2: SandRidge Energy Inc. (NYSE: SD)

STOCK TRADE 2: Buy SD at market price (approx. $6.25), good for the day. Place a protective stop-loss at $4.50 and a pre-determined sell at $10.00.

Introduction

A company whose fortunes have changed thanks to shareholder and hedge fund activism is SandRidge Energy Inc. (NYSE: SD), whose founder and CEO Tom Ward was politely shown the door after years of ”robbing shareholders blind.” High debt and a series of acquisitions gone bad caused SandRidge Energy stock to fall around 80% since going public back in 2007.

Of course, that’s also made SandRidge one of the cheapest energy stocks out there, currently going for just over $6 a share. Plus, a turnaround could be at hand for SandRidge Energy.

SandRidge has recently undergone some major asset sales to right its ship. The energy stock sold its offshore Gulf of Mexico assets to a private buyer for $750 million dollars. While that sale was at a loss — based on the purchase price of those assets — SD now has the cash and ability to solely focus on its onshore unconventional plays. Those include acreage in the Mid-Continent, the Permian Basin, and the up-and-coming Mississippi Lime Field formation in Oklahoma and Texas.

SandRidge Energy expects production to see 37% growth this year by redeploying the offshore capital into its Mid-Continent assets. More importantly, the bulk of that production growth will be higher valued shale oil and NGLs. Overall, that could finally be the catalysts to take SandRidge off our list of cheap energy stocks under $10 as it soars into double digits.

Company Details

SandRidge Energy, Inc. is an independent oil and natural gas company. The Company is engaged in development and production activities in the Mid-Continent, Gulf of Mexico and Permian Basin in west Texas.

Its primary area of focus is the Mississippian formation, a shallow hydrocarbon system in the Mid-Continent area of northern Oklahoma and Kansas.

The Company operates in three segments: exploration and production, drilling and oil field services and midstream services. In January 2014, the Company announced that it has completed the sale of its Gulf of Mexico business, which comprises all of SandRidge's Gulf of Mexico and Gulf Coast properties, to Fieldwood Energy LLC.

Leon Cooperman – Bullish

Renowned investor Leon Cooperman has repeatedly voiced his bullish stance on Sandridge Energy. In December 2013 Cooperman appeared on CNBC and pointed toward the turnaround Sandridge Energy achieved after hedge funds flexed their activist muscles. He considers Sandridge Energy's management to be of high quality and he could see Sandridge double in value which would translate to an implied target price around the $10 mark.

Analysts Opinions

SandRidge Permian Trust (NYSE:PER) a trust formed by SandRidge Energy, Inc (SandRidge) to own royalty interests in 509 developed oil and natural gas wells located in Andrews County, Texas (the Producing Wells), and 888 oil and natural gas development wells to be drilled (the Development Wells) within an Area of Mutual Interest (AMI), was upgraded by equities researchers at Raymond James from a “market perform” rating to an “outperform” rating in a research report issued on Thursday, 9th January.

Separately, analysts at RBC Capital downgraded shares of SandRidge Permian Trust from a “sector perform” rating to an “underperform” rating in a research note to investors on Monday, October 28th. They now have a $14.00 price target on the stock, down previously from $17.00.

Conclusion

Sandridge Energy's operational success is highly dependent on its Mississippian production and it is likely that the company will be even more of a concentrated bet in the future. Past production growth has been quite impressive and presently there seems to be no clouds on the horizon that would suggest production growth in this region is going to slow down. In addition, shareholders have renowned value investor Leon Cooperman on their side who heavily and publicly endorsed both Sandridge Energy as an investment as well as the management of the company.

Therefore, based on the facts above the following stock trades are recommended…..


STOCK TRADE 1: Buy MHR at market price (approx. $8.20), good for the day. Place a protective stop-loss at $6.00 and a pre-determined sell at $13.50.

Buy SD at market price (approx. $6.25), good for the day. Place a protective stop-loss at $4.50 and a pre-determined sell at $10.00.



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