Today Michael Cintolo recommends a strong and fast-growing oil exploration and production stock.
Bonanza Creek Energy (BCEI)
from Cabot Top Ten Trader
Bonanza Creek is another in a long line of energy exploring stocks that have morphed into powerful leaders. The company is making most of its hay in Colorado, thanks to an aggressive drilling program in the Niobrara and Codell fields, particularly Wattenberg, which is emerging as one of the highest return areas in the U.S. Not surprisingly, that’s where Bonanza is focusing its efforts, with 80% of its capex focused in that area.
The company is weighted toward oil and liquids (about 70% of production), is growing rapidly (production rose 55% in the second quarter, including a whopping 105% hike in output from Niobrara and Codell) and, at its current drilling pace, has an out-of-this-world 17 years of drilling inventory in the Wattenberg area alone.
Importantly, the firm recently dodged a bullet as nearly all of its wells were unharmed by some horrific Colorado flooding, and Bonanza is ramping its activity back up. The company also does good business in Arkansas, which accounts for nearly 40% of total output—it’s growing in the 10% range, far slower than the firm’s Colorado operations, but it does provide solid cash flow. Analysts see earnings up 75% in 2014 after a 30% gain this year, and if oil and liquids prices stay elevated, even that could prove conservative.
Technical Analysis
BCEI came public near the end of 2011, so it’s still unknown to most investors. But the stock’s been a big winner—it broke out from its first base last December, then ran from 26 to 42 within a few months. Then came a long sideways consolidation from mid-March through early September. And now the stock is super-strong again, ripping to new highs on big volume in recent weeks. We don’t expect a big correction given the huge buying volume, but it’s usually better to try to buy energy stocks on dips.
Suggested Buy Range: 51-54 (Cabot’s buy range is valid for two weeks.)
Suggested Stop-Loss: 45-46.
Michael Cintolo, Cabot Top Ten Trader, www.cabot.net, 978-745-5532, October 21, 2013