President Trump’s recent announcement of the United States withdrawing from the 2015 Iranian Nuclear Deal has given crude oil bulls a new “awakening.” With oil rallying to levels not seen since 2014, now may be the time to pick up a few energy stocks. Overall, WTI and Brent crude oil has rallied over 18% and 15% year-to-date, respectively.
Sustained low energy prices have been especially hard on small companies. Let’s take a look at three micro-caps that have weathered the storm and are well positioned for the rally.
Mexco Energy Corporation (NYSE: MXC): Don’t let the name fool you. Most of Mexco’s wells are in Texas, with the rest located in 16 other U.S. states. Mexco sold underperforming properties the past year to put their balance sheet in order.
By December 2017, they had increased working capital from $367,675 at the end of March 2017 to $534,037, or 45%. They also reduced borrowings on a line of credit from $2.9 million in April 2017 to only $900,000 as of February 2018.
By being fiscally conservative in 2017, Mexco is entering the current rally with dry powder. Mexco’s recent rally from $3 to just under $6 could easily continue.
TransGlobe Energy Corporation (NASDAQ: TGA): When oil was last at these levels in November of 2015, TGA was closer to $3 than $2. The company has acknowledged that their “stock price recovery has lagged oil price recovery.”
Like MXC, TransGlobe was getting it’s house in order in 2017, but also continued to drill new wells. They went from negative working capital of $16.8 million in 2016, to a positive working capital of $50.6 million at the end of 2017.
The company drilled 15 new wells in Egypt and 3 new wells in Canada (where the company is based). These were the first new wells in Canada in 10 years, and appear to be hitting the energy rally right on target.
Ross Clarkson, the President and CEO of TransGlobe for the past 22 years, has seen plenty of energy cycles. Mr. Clarkson told shareholders in their 2017 annual report that after “the worst down cycle in my 42 years in the industry. There are indications we are turning the corner…”
Goodrich Petroleum Corporation (NYSE: GDP): Finally, let’s take a look at a company that didn’t survive the long energy downturn. Goodrich declared bankruptcy in April 2016 and emerged from bankruptcy later that year.
After being bruised and battered you might expect the GDP management team to play this rally conservatively. But, perhaps providing more proof that the rally is real, Goodrich is doing no such thing.
Management announced in March 2018 it will speed up capital expenditures in 2018 and ’19. They’ll be increasing 2018 spending by approximately 28% to $85-95 million. At the same time, they expect operating expenses to drop by 25-30% through 2019.
If Goodrich gets this right, they’ll see substantial appreciation in their stock over the next few years. That’s a far cry from bankruptcy.
Can the energy rally continue to lift long battered energy stocks off the mat? If it does, these three micro-caps will add a kick to your portfolio.
Disclosure: This article is for informational and entertainment purposes only. Spotlight Growth has not been compensated in any way, shape or form for the creation of this content. This article is strictly opinion, based on the current information made available on these companies. This article is not a recommendation to buy or sell any of the companies listed. We are not registered financial professionals and you should consult your own advisor to see if any investment is right for your portfolio.
Article By: Steven Adams
