A big part of my job as managing editor of StreetAuthority
involves talking with our premium newsletter experts to get a
sense of what they like in the market, where they think it's
headed and how they plan to help their followers profit.
That means I get paid to hear from some of the top investing
minds in the country on a regular basis. What could be better?
I want to share some of that wisdom. I'm featuring insights and
top picks from each of our experts over the next couple of weeks
as a way of saying thanks for being a StreetAuthority.com reader.
Today's pick comes courtesy of Dave Forest.
A trained geologist, Dave Forest has worked in the mining and oil
and gas sectors for more than a decade, traveling as far as
Russia, Myanmar and Madagascar to inspect natural resource
projects. Starting this month, Dave takes over as Chief Stock
Market Strategist for StreetAuthority's Junior Resource Advisor
Scarcity & Real Wealth
newsletters. Dave has been involved in a number of mining and oil
company ventures and consultancies, including a position as chief
operating officer for
Condoto Platinum (ASX: CPD)
, an Australian company with operations in Colombia, and as
director of Notela Resource Advisors, a natural resources
advisory firm. Dave previously managed the energy research
division at Casey Research. For his market-beating pick for this
issue of Insider, the newest StreetAuthority expert went
Here's more from Dave:
The Market is Undervaluing This Energy Stock
Energy XXI (Nasdaq: EXXI)
is as close as it gets to a sure thing to beat the market during
the rest of 2013.
Here's why I'm so certain...
My thesis in oil and gas investing is simple: the junior firms
that are best at growing reserves in a fiscally sound manner are
the ones who get bought out at fat premiums by replacement-hungry
majors. And Energy XXI has some of the best reserves metrics I've
seen in a long while.
I look for evidence that a company is using development cash
wisely. Each dollar you spend on acquisitions, drilling and
completions better create more than a dollar of reserve value.
Energy XXI excels on this front -- during the past fiscal year
the company spent $1 billion and added $1.8 billion in proved
When each dollar spent is creating more than $1.80 in value, you
know you've got a company making the right moves.
Despite these stellar numbers, Energy XXI's share price has
fallen nearly 30% over the past year.
What's the market missing?
I believe investors have been unsettled by the company's oil
output -- which has fallen slightly from its peak in mid-2012.
But the reserves numbers show me that's going to change.
The company recently started widespread horizontal drilling at
its properties in the Gulf of Mexico. The program was so
successful that production swelled quickly.
The thing with "horizontals" is they pump hard when they start
production, but then decline relatively quickly (albeit from a
much higher initial level than for conventional wells). This is
the drop the market is fretting over.
But once horizontals stabilize (as Energy XXI's crop is now doing
-- based on three consecutive quarters without a major decline),
they pump stronger for longer. That's the hidden story in Energy
XXI's surging reserves growth -- the company's horizontal wells
are going to be steadily tapping a lot of valuable oil, for a
Looking below the ground, it's clear this is a company growing in
value -- the kind of growth that's the real driver for
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