As any astute energy investor can tell you, natural gas companies took a big hit over the past few years.
When natural gas prices collapsed to decade lows in 2012, producers found their business model turned upside down. They simply couldn’t sell gas at a profitable price.
As a result, companies scrambled to stay afloat by changing strategies. Instead of drilling for low-priced gas, they started searching for a more profitable product… oil.
But to make this ‘oily transition’, most companies took on enormous amounts of debt.
Of course, highly leveraged companies increase the risks for common stock investors.
And that’s precisely why shares of so many oil and gas companies are still trading at extraordinarily undervalued prices in today’s market- investors are fearful of huge debt on their balance sheet.
Sandridge Energy (SD) is the perfect example…
Stock of this company fell from $14 a share in 2009 all the way down to the recent lows near $5- a 60% drubbing.
But weak natural gas prices and a huge debt load wasn’t the only thing keeping SD in the gutter over the past few years.
Founder and CEO of Sandridge, Tom Ward, was accused of mismanaging the company by a large shareholder in late 2012. A long proxy war ensued which eventually resulted in the ousting of Mr. Ward in June 2013.
With Ward gone, big investors are now taking a serious look at Sandridge Energy…
One of them is billionaire hedge fund manager Leon Cooperman. With an estimated self-made personal net worth of $2.5 billion, it’s a good idea to pay attention when this man makes an investing move.
According to recent 13F filing with the SEC, Mr. Cooperman established a 26.5 million share long position in Sandridge earlier this year.
He explained at a recent investment conference that Sandridge is taking big steps to improve its financial condition.
And he’s right…
Paying off debt and increasing profitable oil production in the Mississippian Lime play is helping Sandridge turn the corner towards long-term profitability.
As a result, Mr. Cooperman believes Sandridge has the potential to double in price.
Sandridge reported Q2 earnings last night and the results were surprisingly good…
Revenues for the quarter came in at $512 million, much better than the $430 million expected by analysts.
While Sandridge still reported a negative $0.07 per share in earnings, a one-time severance expense related to Mr. Ward’s departure accounted for a large portion of the loss. Otherwise, Sandridge turned in an adjusted $0.08 per share profit for the quarter.
So if you’re looking for a rebound stock play, Sandridge Energy is definitely one to keep an eye on. The company has a big institutional investor, improving financials, and an attractive valuation.
Stay tuned to Commodity Trading Research for more exciting investment ideas in resource-based companies!
Until Next Time,
Disclosure: I am long Sandridge Energy (SD) $4 Call options.
Category: Commodity Trading