Frank Curzio: Penny Stocks to Profit from Higher Oil
and Gas Demand
Source: Zig Lambo of
Oil and gas markets, as well as the technology to produce,
distribute and utilize them, are evolving to meet growing global
energy needs. In this exclusive interview with
The Energy Report,
Frank Curzio, editor of the
Penny Stock Specialist
newsletter, brings us up to date on his views for what lies ahead
in the energy markets and offers several ideas for investors
seeking underpriced bargains with great growth potential. While
his newsletter's definition of penny stocks extends beyond
pennies, he believes that the opportunities are in the
: ABRAXAS PETROLEUM CORP. - BP PLC. - CANYON SERVICES GROUP INC.
- CHESAPEAKE ENERGY CORP. - CHEVRON CORPORATION - CLEAN ENERGY
FUELS CORP. - CONOCOPHILLIPS - DEVON ENERGY - ENCANA CORPORATION
- GMX RESOURCES INC. -
ROYAL DUTCH SHELL PLC
- TETRA TECHNOLOGIES INC. - WEATHERFORD INTERNATIONAL LTD.
- WESTPORT INNOVATIONS INC. - YAMANA GOLD INC.
The Energy Report:
Frank, when people hear "penny stocks" they usually take those
words quite literally and think in terms of stocks certainly
trading under a dollar, if not under two bits. Your definition,
as editor of
Penny Stock Specialist,
is a little broader. Tell us why.
Penny Stock Specialist
is more of an under-$10 newsletter. We do have some penny
stocks in there, but you may see some large caps that trade under
$10 as well. About 80% is in small caps. In May, most small caps
were trading at their most expensive valuations to large caps in
more than three decades. That was before we saw seven straight
weeks of declines. I may lean toward recommending even more mid-
to larger-cap companies going forward.
You follow the energy industry in a broad context, which
includes everything from small oil and gas exploration companies
to international majors as well as various types of service and
technology companies related to energy production. Can you give
us a brief overview of how you see the energy arena now compared
to your last interview with us in
There have been a lot of major changes. I do like oil right
now. Most analysts and people I talk to see lower prices in the
short term. But, looking at the long-term picture I think oil is
getting more difficult to find. The political landscape is more
challenging than ever. That is probably why every major oil
company is spending billions of dollars buying shale gas assets
in North America. Short term, we may see oil prices push under
$90/barrel (bbl.), especially with the political motivation to
release oil from the strategic oil reserves, a step that is only
supposed to be taken under extreme emergency conditions.
The last time we released any significant oil from strategic
oil reserves was 2005 during Hurricane Katrina. That was an
emergency. Also during the Gulf War. That was an emergency, but
oil at $100/bbl. is not an emergency. So, it seems more like
another short-term stimulus package aimed at pushing the price of
oil under $90/bbl. ahead of an election year. But longer term, I
like oil and I think it goes a lot higher from here.
So, what do you think the prospects are for developing any
significant new reserves in the U.S. at this point? Probably not
No, it's not great. The majors are using a big chunk of
their capital expenditures buying up shale gas assets across the
U.S. That tells me they are looking to transition into natural
gas. I think if they could find oil they would use that capital
expenditure (capex) to continue drilling to find more. Longer
term, I think oil is going to be more difficult to find. And
that's going to reflect in supply and demand, making the price go
a lot higher.
So, it appears that natural gas is the game of the day.
Give us a little summary of what you think is going on there
since we had the big peak in gas prices back in 2005 and 2006 and
then another, lower peak in 2008. What's in the future?
I think we all know by now we have a huge supply of natural
gas. It's keeping prices below $5 thousand cubic feet (Tcf) at
current demand levels, with roughly 80 years of supply. However,
I think demand's going to pick up sharply. I think liquefied
natural gas (LNG) is a major factor as we begin to export natural
gas to huge growth markets like India and China. This may take a
decade, or even longer, but eventually it's going to happen.
Natural gas use for electricity production continues to grow each
year. Right now it accounts for 23% of electricity generation in
the U.S., with coal at 45%. In 15 years, I would not be surprised
to see these percentages reversed. Finally, many truck companies
including UPS, Huntsman and Ryder, are transitioning their truck
fleets from diesel to natural gas. More than 5 million heavy duty
diesel trucks in the U.S. could convert. I see all of these
trends accelerating over the coming 5 to 15 years. That will
increase demand and cut into supply, resulting in higher natural
gas prices over the long term.
We've been hearing a lot about the "fracking" controversy
lately related to natural gas production. What do you see
happening there and what are the possible consequences?
I think the environmentalists may be bored right now.
That's the only way I can explain why they hate natural gas.
Maybe they prefer we use more coal. But, seriously, there have
been reports that fracking leads to contamination of water.
Numerous independent studies show there is no contamination being
caused by fracking after tens of thousands of wells used this
People can't be opposed to every source of energy and
domestic natural gas seems to be a more benign a source of new
energy than coal or imported oil, isn't it?
I'm a facts guy. I just haven't seen any evidence that
supports most of these claims that are being made. If I did, then
I'd probably change my outlook on the industry. Right now,
there's just nothing there. So, I think there's still tremendous
opportunity in natural gas. And, yes, fracking is going to be
used for a very long time. That's why I continue to like the
industry, especially the service providers, which continue to see
enormous demand. Companies like
Tetra Technologies Inc. (
Canyon Services Group Inc. (
Weatherford International Ltd. (
-which are dirt cheap at these levels-provide a broad range of
oil and natural gas services.
In your newsletter you follow a number of companies in the
oil and gas production industry and related support and
technology businesses. Can you tell us about some you
particularly like there?
One company I do like is
Abraxas Petroleum Corp. (
. It's a great buy under $3.75. The company has over 160,000
acres in shale areas across the U.S., including in the Niobrara,
Eagle Ford and Bakken regions. Bakken has experienced terrible
weather conditions. Most companies operating in the sector
lowered production estimates last quarter as roads were damaged.
Many of the areas were flooded and Abraxas was no exception. So,
they happened to report very weak earnings in May and the stock
got crushed. However, they expect to drill five wells in the
Bakken over the summer so I think the company is a steal at this
GMX Resources Inc. (
is a great play. Six months ago the company made a major
transition from just a natural gas producer to an oil and natural
gas producer to take advantage of the higher oil prices. This
company recently entered the Bakken and Niobrara regions as well.
That gives them the potential to drill over 300 wells. We're
talking about a very small company here. They do have some debt
issues, which is why it's trading below $5. But, they have enough
cash to cover their capex through 2012. It's very cheap-trading
at a 25% discount to its peers.
I also like Tetra Technologies, which I mentioned earlier.
That's more of an oil and natural gas services play. As long as
companies are drilling for oil and natural gas, this company is
going to continue to print money. Customers include all the major
oil and gas companies. We're talking
BP Plc. (NYSE:BP; LSE:BP)
Royal Dutch Shell Plc (NYSE:RDS.A; NYSE:RDS.B)
Chesapeake Energy Corp. (CHK)
Encana Corp. (TSX:ECA; NYSE:ECA)
Devon Energy (DVN)
. . .Tetra is the largest provider of idle well services in the
U.S. After the BP oil spill, the Department of the Interior
announced that 27,000 non-producing wells in the Gulf may need to
be plugged. It was called the Idle Iron program. This could add a
ton of business for Tetra. I think it's a big catalyst that few
people are talking about. I believe the company's a steal at
under $13 a share. It got hit along with the rest of the market
and it's now trading at a very favorable valuation. Demand is
there and growth is there as well.
Do they plug these wells temporarily, pending future market
These are non-producing wells. The government says 3,000
definitely need to be plugged for good and it is evaluating the
other 27,000 wells. Tetra is the largest provider in the U.S. of
these services. So, a lot of these will need to be plugged just
in case you see a possibility of another oil spill. Whenever we
see major unexpected events happen, there's always an
overreaction. But, Tetra Technology is going to get a lot of that
business from this initiative.
That sounds like some great potential. What else do you
The last company that I have for you is called
Westport Innovations Inc. (TSX:WPT)
. It manufactures truck engines that run on natural gas. The
company has a partnership with Cummins, the largest engine
manufacturer in the U.S., Weichai Power, which is a $90B engine
manufacturer in Hong Kong, and also one with Volvo, the European
giant. That's a $35 billion market cap company.
A lot of companies with trucking fleets are making the switch
from diesel engines to natural gas. Companies used to wait for
incentives from the government. Today, the economics make sense
and if the government does provide incentives, that would be the
best case scenario for Westport. We could see 50% of the trucking
fleets in the U.S. switch to natural gas. That would be roughly
2.5 million trucks and Westport is a clear leader in this space.
I think the stock will surge if this happens. The company has
exposure to India, China and Europe, where millions of trucks
could also make the switch to natural gas. I recommended the
stock at roughly $15 a share. We are up about 50% right now. But,
I think it's a huge buy under $24. I see a lot more upside for
What do they have in the way of competition?
There's very little competition and they're well ahead of
it. They just took over an Italian competitor to get more
exposure to India and other markets in Europe. In fact, they have
partnerships with the major engine manufacturers in almost every
area of the world. They are the cream of the crop when it comes
to manufacturing engines that run on natural gas. It's a very
strong buy here.
What about the stations for the fuel?
Well, there are other companies, like
Clean Energy Fuels Corp. (CLNE)
, which actually make the gas stations. As this transition takes
place, more gas stations are going to provide natural gas over
the next five to ten years. A lot of people are on hold right now
to see if the government will pass the $64,000 per truck tax
credit in T. Boone Pickens' proposed Natural Gas Act. But, when
you're seeing companies like UPS, Ryder and Huntsman making the
switch now, that's a sign the economics work right now. So,
Westport is building revenue right now and if the government
provides these incentives I think Westport will really skyrocket
a lot higher.
Do you have any other interesting situations you think our
readers ought to be aware of at this point?
The good thing about
Penny Stock Specialist
is that we're not limited to one or two industries. Right
now I see tremendous opportunity in gold stocks. I think we're
going to continue to throw money at every major problem we have
in the U.S. We're going to see inflationary conditions
eventually. I think a company like
Yamana Gold Inc. (TSX:YRI; NYSE:AUY; LSE:YAU)
, a major producer trading at 10 times earnings, is a very good
buy. The economics behind it make sense and it's a huge growth
model. A lot of gold stocks, if you're looking at trading, are at
the same levels now as when gold was trading at $1,000/oz. So, I
think there are good opportunities right now. Some small cap gold
companies have sold off 20%-30%. Gold stocks seem to still have a
tailwind behind them, especially on the economic front. So, it's
one of the sectors I'm looking at right now.
What are you expecting to happen over the summer and
through the rest of the year as far as price outlook and market
performance? And, what kinds of things should investors be
considering in making decisions at this point?
When it comes to oil and natural gas I think it's important
to think in terms of the long term. Short term, it's going to be
rough. I mean almost every stock that I mention here has been
trading in a 40% trading range over the past two to three months.
So, if you're going to buy into some of these companies, and say
you want to buy 1,000 shares of a company, don't buy the whole
1,000 shares at once. Try to scale into these positions. Take
advantage of volatility. So you buy 200 here, 200 there, even if
it takes you six to nine months to establish a full position. If
you really have a three- to five-year outlook, or even longer,
you can look back and say, wow I was buying these natural gas
companies below $5. Westport at $22, $23 would be a fantastic
buy. The short term is going to be extremely volatile. But longer
term, I think those tailwinds for natural gas and oil are still
behind these companies and I think they're going to do very, very
Do you see anything particular on the horizon that could
either make the market go up drastically or down drastically if a
particular thing happens?
In terms of the market, definitely focus on the stimulus
package. There's going to be a QE3. No one wants it, but from a
market and political perspective, we will get more stimulus. I
think we could see a rebound in the markets if this happens. We
will also see a rebound in economic statistics. If GDP estimates
pick up, we will see a rally behind many stocks. So, it's
something to focus on with oil, natural gas and gasoline prices
off their highs. If we do see another stimulus package-it's going
to be very good for stocks in the short term.
What could happen on the negative side that could blow
We continue to see negative data on the job market. We
continue to see GDP numbers come down. Anything showing that
economy is slowing will be terrible for the markets. We could see
gasoline prices move considerably higher. I think that would hurt
consumer spending. But, right now it's the economy. If we see
economic statistics pick up a little with some improvement in
housing numbers-that will be great for the stocks. On the flip
side, if we still see weak unemployment numbers, stocks will fall
from these levels and it's a big risk.
But, generally, you feel reasonably confident that this is
probably a pretty good buying opportunity and people should be
accumulating those stocks that they think are undervalued?
Yes. Accumulate the stocks that you think are undervalued.
Every stock that I gave you today is a buy. Some small caps have
gotten nailed 20% or 30%. Start picking away at some of the ones
that insiders are buying. Buy companies that have beat estimates
over the past couple of quarters and have pulled back along with
the rest of the market. These are some of the areas I'm looking
at for new ideas right now.
That certainly sounds like good solid information. We
greatly appreciate your time and insights and look forward to
checking in with you again in the future.
is the editor of
Penny Stock Specialist
-an investment advisory that focuses on stocks trading under
$10-and its exclusive
Phase 1 Investor
advisory. With more than 15 years of investing experience,
Frank is the latest addition to the Stansberry and Associates
Before joining Stansberry, Frank wrote a
on under-$10 stocks for The Street. He's also been a guest
on various programs, including Fox Business News and
The Kudlow Report
and is a featured guest on CNN Radio. He's also been quoted
in financial publications-both online and off-and has enjoyed
numerous mentions on Jim Cramer's Mad Money. Frank's "S&A
Investor Radio" is one of the most widely followed financial
broadcasts in the country, and his investment strategies-value,
growth, top-down and technical analysis-have regularly produced
200%-500% winners for his subscribers over the past 15
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1) Zig Lambo of
The Energy Report
conducted this interview. He personally and/or his family own
shares of the following companies mentioned in this interview:
2) The following companies mentioned in the interview are
The Energy Report:
Royal Dutch Shell.
3) Frank Curzio: I personally and/or my family own shares of the
following companies mentioned in this interview: None. I
personally and/or my family am paid by the following companies
mentioned in this interview: None.
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