BUY RRC - Nat Gas laggard & small cap laggard - back @ $2 = load up time !
I just got filled for a nice load at $2 - good volume today; re-loading once again @$2 - sitting at $1 7/8ths - but, dont think I can get filled there - good strong buying stepping in at $2; I had to go to 10K to get filled on a fill, or kill order; use either a lg volume trade, of fill, or kill to get filled imo.
Many of these small caps have broken out & run up. CRK ROIL RGO BNO etc.
RRC offers an interesting buying/trading opp again here imo for a few simple reasons.
Because RRC had not participated in the rebound of many small caps - I think we saw some Institutional Liquidiation via Window Dressing at the end of the qtr here; this is artificial selling and I think they bulk of the shares get bought back shortly.
RRC lost nearly 1/4 of its institutional holders, in "number" - but the major holders bought up the selling from smaller players and the "net" institutional holdings barely changed thru the end of Q4 and I would expect it will show the same situation in Q1 when reported.
insidertrader.com
Bottomline: this company had improved itself financially on a dramatic basis since last year when it sold at $5-$7 ! - that is what makes this such a geat value for the longterm and a great trader on a pop - if the assumption of a substantial portion of the selling being the result of end of qtr window dressing; is correct.
I still like RRC value story - the poor hedging is priced in obviously, but they had to guarantee to their institutional holders and lock in the ability to fund internally their cap ex program that will allow them to pay down debt. THIS is why Franklin has bought the hell out of the weakness in RRC here. I've done all the homework that I can on who is buying/supporting RRC and why.
Bottomline - is that large Institutional holders wanted to eliminate any possibility of insolvency, or severe financial problems that would lead to asset divestitures to pay down debt if Nat Gas fell to $2 again. What RRC has done; is to eliminate the potential of Bankruptcy, or financial weakness to the point of further having to divest of assets and guarantee that they will reach a balance sheet level to where the Street will return them to a $5-$7 valuation.
They've been buying back the convertible preferred - of whose "short the common hedge" has been killing the common stock here. This is also a "when, not if" story - as they know they need to buy back the convertibles.
It's merely that they get penalized in the short term for doing the things necessary, that are painfull in the nearterm - like hedging - that guarantee that they will reach that point in the future.
My homework has also endorsed one of the other primary reasons that RRC appeals to me; it has a near peer-leading Reserve Life to its assets. They do have a very nice offshore GOM drilling portfolio that is a forgotten gem - the institutions are sucking up all the $2 shares here now; as they got RRC to bite the short term bullet - in heding into a rising nat gas market - but, guaranteeing internal cap ex funding; and by late 200o, or early 2001 they will be able to pursue that offshore high impact drilling that can take it to the $10 price targets that are still out their on RRC.
I see RRC as being a 2.5 bagger for the patient and it being merely a when and not an if play.... RRC is NOT - can NOT go under here; given their hedging - it's nearly priced as an option on BK here - which is a mathematical imposssibility with their hedging. The time-value discount is a no-brainer... one more sector-wide pop here; and RRC will stand out as a sore thumb NG value play...
CRK ROIL BNO MLRC and many small/micro's well up off their bottoms - RRC is clearly THE laggard value play among this group.
What I really like in RRC is their main Institutional holders have been strong buyers into weakness - they are smart; we've seen strong buying support at $2; we now have a firm triple bottom off of $2 forming. I think we break out thru $3 and the next base forms back at $3.50 - $4.25 perhaps shortly after the reporting of Q1.
RRC has risen to the top of the value charts here on 3 primary valuation metrics -
1. Price to NAV of .27
2. Price to Book - .59
3. Price to sales - .38
4. Reserve life that leads its peer sector and the company is selling at nearly 1 x cash flow !
Q4 Cash flow increased 141% from the prior year period to $17.8 million or $0.46 per share excluding non-recurring items. The net loss in the quarter was $9.4 million ($0.27 per share) after $6.1 million of non-cash impairments and a $4.0 million reduction due to hedging.
Production has suffered due to property sales and cap ex expenditures being kept within budget - this is not a problem what so ever; given the context of their long lived, low risk asset base. That is a key factor in this stock.
Company is only 1-2 qtrs away from profitability and is on a $1.84 cfps run rate. They are reducing debt, the IPF is a hidden asset and turning very profitable here - and the risk is reduced in this NG environment.
RRC stands nearly alone on any risk vs. reward small cap laggard/value play & being a near Nat Gas pureplay in this environement is the icing...
Loading the boat again at $2 here. Trade it for an easy 15-25-35% pop, or be patient like Franklin Resources and hold it for a 2-3 bagger; just run the numbers; RRC is executing strongly and within 2-3 qtrs will have turned the corner to never look back on $2-3 again.
*** RRC moved from $2.37 on April 8th to $5 on April 30th last year in just 3 weeks. I've done my homework & contacts on this one - it's just another "Deja Vu - all over again" play shaping up - bank on it!
There is plenty of buying support - and that triple bottom is forming a breakout here imo and the artifical window dressing selling will be coming back as buying very shortly here.
RRC - load thy boat; it's never been better on a risk vs. reward to valuation/laggard standpoint. |
