2018 Investment Series Post 4

Everyone loves payday. Just like everyone else, once I get that sweet deposit in the bank it starts burning a hole in my pocket. Before much time I am ready to blow it all on a shopping spree. My store of choice is the stock market, and I’m shopping for the best deals on companies. Here is what I dropped my $1,000 on this Friday, February 16th.

Contango Oil and Gas Company (MCF)

The fourth pick of the Let’s Be Millionaires investment series goes to Contango Oil and Gas Company.

Contango Oil and Gas Company is headquartered in Houston, TX and is a small, independent energy company in the business of drilling for oil. The company currently has oil wells in three main locations: off shore in the gulf of mexico, on shore in Texas and on shore in Wyoming.

Check out Contango Oil and Gas.

About The Stock

MCF stock truly feels like a hail Mary. This stock has been getting thrashed for years, and for good reasons such as the death of their former founder and CEO, an oil spill, and general inefficiency when compared to competitors. The stock had a high of $92 in 2008, now it is trading for just above $3 a share. Last quarter the company reported a loss, showing the company was still struggling in Q4 of last year. Due to a loss occurring, the company is said to have negative earnings per share and therefore the P/E ratio is unable to be useful.

At the end of last November MCF saw its 52 week low price at $2.27. Since then the stock is up about 42% to $3.25. The stock is cheap even compared to just one month ago when shares were trading at levels above $5.50 per share, a more than 70% premium from current prices.

Percentage wise this stock moves a lot. It is not normal to see 50% rises and drops over the period of one month in most stocks. The stocks current market cap is only 82 million dollars, making it the smallest company to date to be held in this portfolio.

Contango Oil and Gas Conmpany (MCF) can be categorized as a domestic, micro-cap, energy growth stock.

The Speculation

Oil companies got slammed from 2014-2016 as oil prices tanked from $110/barrel to a low of $30/barrel. This drop in price rendered many oil companies unprofitable, and caused many bankruptcies. Now that the price of oil is back in the $60-$70/barrel range, companies like Contango Oil and Gas Company have a seemingly brighter future.

I think Contango, due to their shortcomings, has much more room to improve both their margins and their share price when compared to the competition. Not only do I believe that Contango can return to profitability, but I believe that oil prices can improve even further for two reasons. The global demand for oil has nowhere to go but up for at least 5 more years. Even as developing countries like China place emphasis on electric vehicles and other ways of consuming less fossil fuels, the pace of demand increases will still be brisk. More developed countries means more cars, more flights and more shipment of goods.

The second reason, at least in the medium term, is a weakening dollar. As the dollar weakens in value, the price to acquire a barrel of oil increases. Since oil is priced in dollars, the weaker the dollar, the more dollars per barrel. We are coming off a period of strength in the dollar and I expect a weaker dollar to be a theme of this year.

Lastly, as conditions in the oil markets improve larger players will likely be looking to use some of their on-hand cash to acquire smaller companies that are beaten up from the last few years. If Contango can prove to be profitable, there are a number of much larger companies that could chose to expand their portfolio of oil wells by acquiring the company and bringing much more scale and efficiency to Contago’s current operations.

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2018 Investment Series Post 1

2018 Investment Series Post 2

2018 Investment Series Post 3

2 thoughts on “2018 Investment Series Post 4”

  1. Not a bad pick! How do you go about researching / discovering the stocks you add to your investment series? Essentially where do you start?

    1. If you are interested in finding smaller companies that you wouldn’t have heard of then a simple google search of something like “promising small-cap energy stocks” would be a good place to start. Tons of investing sights post their lists of picks that they predict will do well each year for different categories and at the very least you can find out about some interesting companies.

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