3SOF

Fundamental Case:

I've been having some trouble finding interesting stocks to buy, using both fundamental and technical analysis. But there's one thing moving up for sure:



I already have GW in the TM Portfolio, which is somewhat linked to the $NATGAS prices. But I want  more, a more pure play. I was tempted to go for a small company, which is NGAS. If you look at that stock's chart, when $NATGAS was at $15, NGAS was also at $15 (late 2005). Now $NATGAS stands at $10.06 and NGAS closed yesterday at $6.22 (and there wasn't significant dilution since 2005). So NGAS looks to be trading at a discount (also I see the company increasing production and results getting better).

Anyway, there's this other company, SandRidge (SD), which is a $6 B market cap company. I find it "overvalued" using the usual metrics of price to sales and price to earnings ratios. But the chart is much more bullish (as we'll see next) and revenues and earnings are growing incredibly fast.

This situation clearly reminds me when AussieTrader came to me with FSLR at $50. I told him, "man, that's a $3.5 B market cap trading at 100 times earnings, what's the point? I prefer this other solar play, smaller and undiscovered, it has a lot more potential". Needless to say, FSLR is up 6 fold in less than a year to $21 B market cap and my stock is up ... just 12%

So I'm going to fill myself with courage and this time I'll go with the bigger company. There's an article "explaining" the company's potential which probably has been pushing buyers to the stock:

• Oil And Gas Producer On A Winning Streak In West Texas Field
Investor's Business Daily (Tue, Mar 25)

This isn't a sound fundamental case for buying SD. But I feel I won't find much more if I investigate further. The investment story is: "$NATGAS is going up and SD is the fastest growing and more promising company in the sector".

This is all I need to know to go with it. "Overvalued" or "undervalued" doesn't mean much to me, not anymore.

Technical Case:

SD closed at a new all time high yesterday and that's as bullish as it can be:



Volume was the 2nd highest in the company's short history in the stock market, at 3.3 million shares.

Trading Plan:

Buy SD at the open. Sell with a small loss if the stock is set to close below $40. Otherwise just keep holding.

The SPY is tanking really hard today, but SD's prospects depend mostly on one factor: natural gas price. And I guess this will be moving up ... $NATGAS was down before solely because of that hedge fund that collapsed, what was its name? Was it "Amarantz"? My memory fails me sometimes.

Anyway, my take is, if it weren't for that hedge fund (and the desire, by the bigger hands, to take its money), $NATGAS prices would have run up as much as $WTIC (oil futures at stockcharts.com).

Well, there isn't a lot to think about, the plan is just HOLD, unless SD is set to close below $40.

Quote from: David Randolph on April 11, 2008, 08:55:28 AM
The SPY is tanking really hard today.

Poor ER from economic bellwhether GE

Another bullish in the sector

Quote from: BigSully1 on April 11, 2008, 02:55:22 PM
Another bullish in the sector

Thanks Sully, probably we should open a new thread for CLR in the Watch List, there aren't many stocks going up outthere. In the Watch List I just see CPST moving up strongly (congrats La-onda .

SD looks solid. However $NATGAS failed to make a bullish breakout on Friday. The pattern looks like an ascending triangle, though:



It is crucial for SD's long term investment story that $NATGAS is in a long term bull market.

The plan remains:

HOLD SD, unless it is set to close below $40.

$NATGAS is making another bullish breakout attempt:



So $NATGAS closed at $10.13, which is significantly higher than analysts at Lehman Brothers estimated when they raised SD's price target to $48:



The plan remains:

HOLD SD, unless it is set to close below $40.

The plan remains:

HOLD SD, unless it is set to close below $40.

$NATGAS is definitely bullish:



And so is SD.

The plan remains:

HOLD SD, unless it is set to close below $40.

The plan remains:

HOLD SD, unless it is set to close below $40.

Natural Gas continues to power ahead ...



... and SD closed at a new all time high:



The plan remains:

HOLD SD, unless it is set to close below $40.

The plan remains:

HOLD SD, unless it is set to close below $40.

The plan remains:

HOLD SD, unless it is set to close below $40.

Lehman Brothers estimated SD's Net Asset Value at $48 while it also estimated $NATGAS prices would be at $8, on average, throughout 2008. Well, $NATGAS closed around $11 yesterday:



I guess that with $NATGAS at $11 (if it were to stay that way over the long term), SD's net asset value is more like $66.

Here's the way I'm going to trade SD. I'll take profits if the stock reaches the estimated net asset value, taking Lehman's estimate and adapting it to the new price of $NATGAS (also, in another analysis, I read SD's net asset value rose 12% for every $1 rise in $NATGAS, which is consistent with my calculus). If this happens, I'll try to buy it back again at a discount, maybe at the 50 days SMA support.

If everything goes wrong, that is, SD closes back below $40, I'll just bail out with a small loss.

So, the new trading plan for SD is:

Take profits at $66. SELL with a small loss if SD is set to close below $40.

Trading Plan:

Take profits at $66. SELL with a small loss if SD is set to close below $40.

Lehman Brothers raised estimates and price target for SD yesterday:





Trading Plan:

Take profits at $66. SELL with a small loss if SD is set to close below $40.