When sectors fall, investors have a tendency to panic.
They sell just about everything, sending even the best stocks to unreasonable lows.
Sure, most times stocks plunge because there are fundamental issues.
But in some cases, fundamentally sound stocks are low because investors panicked for no good reason. That’s where opportunity can be found.
And when you spot it, you can make a fortune.
Look at Halcon Resources Corporation (HK).
From May to late June 2017, oil prices slipped from a high of $52 to a low of $42.05 on supply-demand fear. At the time, investors sold just about anything even remotely related to oil, sending many stocks plummeting.
Even those that were fundamentally sound like Halcon Resources.
While the stock’s price fell 60%, earnings were beginning to explode.
We didn’t ignore that opportunity. Others were unloading the stock, but we were impressed with its sales and earnings. In the first quarter of 2017, total operating revenues were $135.6 million, compared to $81.35 million the previous year. Net income soared to $188.5 million -- a huge improvement when compared to a year-earlier loss of $566.9 million. EPS shot from a loss of $4.72 to a $1.69 profit.
The Company had weathered a couple of tough years and filed for reorganization under Chapter 11 of the bankruptcy code in July 2016. The pre-packaged bankruptcy had creditor support for the reorganization, and Halcon exited bankruptcy just two months later on September 9, 2016. It started trading on the NYSE on September 12, after a 1 for 34 reverse stock split and closed that day at $10.85.
After the reorganization, the Company was in much better shape. It had $62 million (68 cents per share) in cash and a book value of $7.66. By the first quarter institutions were bullish, buying 60 million more shares than they sold for the quarter ended March 31, 2017. Institutions bought those shares at prices ranging from $10.30 to $5.79.
Plus, the company just increased its second quarter and full-year 2017 production guidance by 1,000 barrels of equivalent oil per day (Boe/d). And it projected second quarter production to be between 33,000 and 35,000 Boe/d and full-year production to be 38,000 to 40,000 Boe/d.
That’s growth we simply could not ignore. But others continued to sell the stock, and the price dipped even lower.
So, in late June 2017, The Cheap Investor recommended that subscribers buy HK at $3.79 per share, noting that, “if the company continues to grow its revenues and earnings, the stock has the potential to do very well over the next couple of years.”
As it turns out, HK didn’t need a couple of years.
In fact, just weeks after our recommendation, the stock soared from our $3.79 entry to a high of $6.91 – a potential gain of 82% on news that HK agreed to sell most of its Bakken assets for $1.4 billion in cash. Every $1,000 invested was now worth over $1,800 in just three weeks.
When sectors fall, use it as an opportunity to find undervalued, fundamentally sound stocks, like HK.
The best part – we’re still finding opportunities just like HK for The Cheap Investor.