New trade for January 13th, 2011.
When running our weekly VCIM screens we sometimes come across some not so ordinary situations. And while one of the primary criteria of the model is 'rolled-back' stock, that doesn't mean we won't take a real good look at an on-going concern with less than 20 million shares outstanding. Indeed, today's purchase is along these more abstract lines. Once we delve into the fundamentals, I think you will see why CRI thinks this little company is rather compelling at these levels.
The company specifically is, Ripper Oil & Gas (RIP.V). Currently CRI has been accumulating at or near $.13.
Fundamental Background:
RIP is in the Cdn oil & gas business with several properties across western Canada. Previously, the company was heavily tilted towards gas rather than oil. The company has been in the process (over the past two years) of divesting many of its natural gas assets. So much so, that now the company is basically 50/50 Oil/Gas.
What is most interesting is how they went about it. The company recently announced they has closed the sale of a substantial portion of their natural gas assets, coal bed methane assets to be exact (news link) for a little more than $13,000,000. Through the sale, the company was able to strategically reposition itself as a 50/50 producer and pay off all its debts. At the same time, the company distributed a portion of the cash to shareholders in the form of a dividend. Lastly, because of the dividend the company canceled 450,000 options to directors (new link) suggesting there is little stock overhanging the market.
Once all the dust settled the market has been left with a very interesting little company. Currently RIP is trading at an incredible discount of 0.189 price to tangible book value. Their latest quarterly report details the fact that the company has a number of producing assets and over $700,000 in cash (news link). And since they company still has only 20 million shares outstanding, any property aquired with that money could be subject to flow-through financing down the road.
So a producing asset with cash in the bank and trading at a huge discount to book value, sounds interesting to say the least. Now lets go take a look at the technical picture
Technical Backgrownd:
5 year price chart
RIP has been heading down for quite some time. The stock topped in 2004 just above $2.00/share when natural gas was all the rage. As natural gas prices have steadily fallen, so too has RIP's stock price. While I am reticent about declaring an official 'bottom', it is interesting to note that the stock did origionally bottom near $.11 back in 2009. After an almost 6 fold increase (up to $.60) the stock sold off on the recent dividend payout back down to the $.11 area. Considering the substantial book value of the company and the fact there are so few shares outstanding, I wouldn't be surprised if $.11 is a floor once again. So if we can see some sort of daily bottom come in over the coming days/weeks - from a weekly perspective we could easily see this stock rally first back to the $.60 area (test those recent highs) and then ultimatly to the 5 year 50% level at or near $1.00.
6 month price chart
Taking a little closer look at RIP we can clearly see the negative impact the dividend had on the stock price. But interesting here, momentum and money flow have moved up since the initial collapse even though price hasn't. Here too, we see that a 50% retracement of the horrific fall would bring price have up into the $.35 which happens to be more than double current prices. Because of this fact CRI has gone ahead a bought a small position in RIP to get started. A move above $.15 would register a double bottom buy price pattern and shall be my trigger to add to the position.
Once filled I will immediately place an open order to sell half of the position at double the purchase price (in this case at or near $.30).
Remember, make sure the system you are using is at least 66% accurate and for heavens' sake, don't put more than 5% of your risk capital into any one play.
That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com
