Latest Recap (complete):  Friday (2/6) Comments & Stock Picks
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A Great Pick as a Spec-tacular Play
on Natural Gas... 
Friday, February 6, 2009

Jim:     On Monday I got a question from Josh in Texas… he was asking me about GMX Resources Inc. (GMXR)… I took a pass so I could do some homework… while drinking some cheap scotch on my dirty linoleum floor… make mine Cutty, okay… you report, I mull it over some Cutty, and then I decide… my verdict… now it seems like crude has bottomed… I think it is worth taking a speculative look on oil and gas plays that look cheap relative to the value of their assets… but the emphasis here is on the speculative… GMXR fit’s the speculative profile… so if you want to speculate on a small beaten down natural gas play… that won’t put a silent but deadly hole in your portfolio… I think this one works… you know what this company is… it is a Jumping Jack Flash kind of a play… do you know what I mean… not the movie the song… it is a gas, gas, gas...

What are we looking for specifically in these kind of companies… we want stocks that are trading at discounts to the companies… what is known as net asset value… that is the value of all their assets minus their liabilities… their debt… for GMX Resources the net asset value estimates of the companies proved reserves range between $20 and $57... proved reserved… that means what they own… but the stock… remember the low end is $20... the stock is at $23.84 a share… that is a huge discount to the average net asset value which I calculate to be $38.50... so it is cheap… in fact, while I don’t count in Steph… or even Grand Theft Auto Four… although I am a rock band fan… I would call this one a steal… and remember these estimates don’t include the value of provable reserves… the additional reserves that GMXR can book… if it keeps drilling… and finding more gas… which it is doing.

The estimates have put the value of this companies provable reserves at between… and this is where you really get the very, very big disparity between the stock price and where it is… between $60 and $85 a share… so to me it looks like there is a major speculative upside in this name… you know what we should think of this not as a Jumping Jack Flash song… but this is kind of like there will be blood kind of stock… with a share price so low relative to the value of its assets… that buying it is practically an old fashioned land swindle… hey, how about the pin action at the end of there will be blood… obscure reference… okay, think of it like this… the value of the land that GMXR owns and all the natural gas that sits under it… if they just sold it all it could be worth 2, 3, 4 times what the company is valued at now… the company is worth more dead than alive… or certainly worth more to another company that needs the assets… a lot of natural gas exploration companies are in this position… because their stocks have sold off viciously courtesy of the collapse in Natural Gas prices… and the hedge funds gone wild… because a lot of them own these things.

Now, I think that they and
GMX Resources Inc. (GMXR) in particular could come back… because they are at levels where value investors and speculators would be crazy not to buy them hand over fist… now, GMXR is focused on drilling and in what is know as the Haynesville Shale… it has 435 billion cubic feet in proved reserves… 3.2 trillion cubic feet in total reserves… 94% of its production is in natural gas… 32 years of reserve life… now the company is cutting back… it has cut its budget from $400 million to $220 million… scaling back production in order to reduce the financial pressure it is under… it has $50 in cash and $206 million in debt… that is a lot of debt… that is speculative… that is what makes it speculative… so the budget cuts will still make it fine… and even with the budget cuts the company still expects to increase production by 93% over 2008 levels this year… that is good… it is also one of the lowest cost operators in the game… with finding and development costs running at .80 cents per 1000 cubic feet.. that is really cheap… remember the medium cost for the industry is a little less than $3 bucks…

 

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    Lightning Round Highlights:
   

Southern Copper Corp. (PCU)

Q:     I got a copper play, Southern Copper?...

Jim:  
Earlier this week we had a chart from my friend Dan Fitzpatrick… I don’t know if anyone saw it… it was about Freeport-McMoRan (FCX*) and about how it was about to break out… it broke out big… why… cause copper was up an outstanding double digit percent this week… PCU just cut its dividend you know what.. it doesn’t matter… the stock is good… and it is going higher… you have got a winner in PCU.


  FedEx Corporation (FDX)

Q:     FDX, Jim?...

Jim:  
I like FedEx but it had a very big move this week… I want to refer you to UPS… which also had a big move but it has got a really good dividend… United Parcel Service, Inc. (UPS), by the way… you have got to go read that conference call… it is such a well run company… it almost yields 4%… they have no plans to do anything other than I think to boost the dividend… UPS to me is a cheaper stock than Fed Ex… and they have a very, very good behind the scenes supply management group… it is really value added… and they really benefited from the DHL collapse.


  Dollar Tree Stores (DLTR)

Q:     I see Dollar Tree?...

Jim:  
Over reaction… oh the negative stuff that they put out yesterday… vicious over reaction… I would be a buyer of Dollar Tree… but let me make you one better… I would buy Family Dollar Stores Inc. (FDO)… remember we had the management on… they have a lot of things that they can do to raise margins… even if people don’t go to the dollar stores… they have got stores all over the place… I like FDO more than I like Dollar Tree.


   
 
 


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