Undiscovered Equities Top Picks for 2011
3/9/2011 2:30:28 PM
Undiscovered Equities would like to thank all of our subscribers for their kind words and support over this past year.
All in all, 2010 was another great year and we expect 2011 to be even better. As promised, we would like to take this opportunity to showcase our top 10 investment opportunities for 2011.
Our advice to our subscribers again this year is to remain patient, have a long term outlook and continue to invest in great businesses: ones that can make huge profits and grow dramatically even in today’s economic environment.
We have been pleasantly surprised by the recent US economic numbers. We feel the labor market will steadily improve next year and Washington’s extension of the Bush tax cuts and unemployment benefits will definitely add to GDP growth in 2011. Besides the Euro debt situation, the global economy outlook is even better as China, Latin America and India continue to modernize. In addition, the dollar’s continued weakness will also support high oil and other commodity prices.
Looking ahead we think investors will continue to rotate out of bonds and into equities pushing the S&P 500 to around 1500 by year end. Oil prices will continue to rise given the strength in underlying fundamentals. Inventories have declined rapidly this past year as global demand growth has accelerated. China’s oil demand in November hit an all-time high of 9.3 million barrels per day, up 13.7% from last year. China is also expected to resume building its strategic oil reserves next year. In addition, the International Energy Agency recently upgraded its demand forecast for next year as the economy slowly improves and we are confident oil will end the year over $100.00 per barrel.
We believe that easy monetary policies will continue and gold should climb to about $1700.00 an ounce by the end of 2011 and continue to move higher.
We expect these 10 stocks to outperform in the New Year and as always it is important to keep some cash in reserves for extraordinary opportunities.
Aberdeen International (TSX: AAB) $0.83 as of 12/31/10
TSX Listed Aberdeen is a publicly traded independent merchant banking company focused on the global natural resources sector. Aberdeen offers advisory services in project, corporate and debt capital markets, equity financings, mergers and acquisitions, and strategic business development. Aberdeen also has a gold-focused investment strategy and seeks maximum returns by identifying, investing in and consolidating junior gold mining companies and other resource companies. The Company seeks to acquire significant equity participation in pre-IPO and/or early stage public resource companies with undeveloped or undervalued high-quality resources. Although the stock has jumped to new highs since we met the company in early November, we think it still has plenty of room to run. We also feel that the continued weakness in the dollar will add to Aberdeen’s success.
BPZ Resources, Inc. (NYSE: BPZ) $4.76 as of 12/31/10
Houston based BPZ Energy is an oil and gas exploration and production company which has exclusive license contracts for oil and gas exploration and production covering approximately 2.2 million acres in four properties in northwest Peru. It also owns a minority working interest in a producing property in southwest Ecuador. The Company is currently executing the development in Block Z-1 of the Corvina oil discovery, as well as the redevelopment of the Albacora oil field, and the exploration of Blocks XIX, XXII and XXIII, in parallel with the execution of an integrated gas-to-power strategy, which includes generation and sale of electric power in Peru and the development of a regional gas marketing strategy. This company has world class assets and significant proven reserves. With the Corvina oil field recently starting commercial production the stock seems primed to flourish.
C&C Energia, Ltd. (TSX: CZE) $12.50 as of 12/31/10
TSX Listed C&C Energia, Ltd. is engaged in the exploration for, and the acquisition, development and production of oil resources in Colombia. Its strategy is to develop producing oil assets by appraising and developing existing discoveries and exploring in areas assessed by management to be of low to moderate risk. The Company has a robust inventory of oil focused, drill ready prospects on over 586,909 net acres. C&C Energia has an excellent track record with 77% exploration success over the last three years. They intend to drill 15 (9.9 net) exploration and 8 (5.2 net) development wells and one water injection well, in 2011. The company had huge cash flow growth in 2010 up over 200% to $75million. With a strong balance sheet, no debt and a drilling program of over 15 net wells in 2011 we think C&C Energia is poised to be another multibillion dollar Colombian exploration success story.
Cavitation Technologies, Inc. (OTCBB: CVAT) $0.145 as of 12/31/10
Cavitation Technologies, Inc. (CTi) designs and engineers nanotechnology based systems with potential commercial applications in vegetable oil refining, renewable fuels, alcoholic beverage improvement, algae oil extraction, water-oil emulsions, and crude oil yield enhancement. CTi’s NANO Neutralization System is used in the vegetable oil refining process to process crude or de-gummed vegetable oils such as soybean and canola into refined oils for human consumption. The system offers end users the potential to reduce operating costs and increase yield while helping to improve the environment.
CTi successfully completed pilot testing in a soybean oil refining plant. CTi’s system is being used in one vegetable oil refining facility and being rolled-out in others. The first commercial deployment of CTi’s NANO Neutralization System occurred in 2010. The general manager of that facility commented that the system was straight-forward and simple and that they were very pleased with the performance of the technology. Additionally CTi’s process helped solve significant waste issues for the plant reducing contaminants to the oil that in the past would have added significant disposal costs. Our visit to the plant in 2010 confirmed the exciting results as almost 1/3 of the plant’s equipment consisting of giant chemical mixers and boilers were turned off and no longer necessary as a result of the Nano-Neutralization reactor. Engineers at the plant were thoroughly impressed by the performance of CTi’s system at times finding the yield improvements almost hard to believe.
CTi recently delivered and received payment for another system.
CTi’s progress did not go unnoticed by major players in the vegetable oil refining technology space. In 2010 CTi teamed up with the top tech giant in the food oils industry, Desmet Ballestra, a division of Barclay's Global, and a global leader in the design and delivery of advanced processing systems for the vegetable oil extraction and refining industry. Desmet oversaw a significant amount of the commercial test and installation procedures and results. Excited with the results and the savings potential CTi’s Nano Neutralization process can offer vegetable oil refiners worldwide, Desmet agreed to partner with CTi in a full scale commercial distribution launch taking on a large percentage of the marketing and installation costs. This has allowed CTi to focus on the design and production of reactors and related technology. This arrangement also reduces CTi’s need for working capital as Desmet assumes responsibility for much of the marketing and sales activities. This reduced need for working capital moderates the potential future dilutive impact to shareholders. The business model as a result offers potentially high profit margins whereby CTi and Desmet Ballestra share in the savings created by CTi’s systems for the customer refining plants. Profit margins for CTi could run into the 80 +% range for many of the installations and Desmet has identified dozens and possibly hundreds of installation opportunities from companies that are currently clients and could benefit financially by installing a Nano Neutralization System in their refinery. The moderate distribution goals Desmet Ballestra has planned for 2011, 2012, and 2013 make us confident that CTi could be breaking new highs in the coming months and years and possibly become a significant takeover target as their footprint grows in the market space.
Far East Energy Corporation (OTCBB: FEEC) $0.70 as of 12/31/10
Houston, Texas based Far East Energy Corporation together with its subsidiaries, focuses on the exploration, development, production, and sale of coalbed methane gas (CBM) in the People's Republic of China. The company owns interests in three production sharing contracts, which cover the 485,000-acre Shouyang Block in Shanxi Province; the 573,000-acre Qinnan Block in Shanxi Province; and the Enhong and Laochang areas, which total 265,000 acres, in Yunnan Province. In addition Far East recently announced that gas production from the Shouyang Block in the Shouyang Block of Shanxi Province, China is accelerating rapidly. The Shanxi project in full development has the potential to become one of the largest CBM projects in the world. Far East Energy Corporation recently announced the results of an independent engineering report prepared by Netherland, Sewell & Associates, Inc. (NSAI) estimating the total coalbed methane Original Gas-in-Place (OGIP) in Far East Energy’s Shouyang Block situated in Shanxi Province, China. The report covers three target coal seams (the Nos. 3, 9 and 15) and concludes with a best estimate of Original Gas-in-Place of 7.0 trillion cubic feet (Tcf) of coalbed methane (CBM) gas and a high estimate of 8.5 Tcf covering the 487,000 acres under the company’s Shouyang Production Sharing Contract (PSC). It is also important to note that the price of natural gas in China has gone up over the last 4 years as opposed to the US where prices have plummeted. In a country that desperately needs clean energy resource Far East shares seem likely to continue to appreciate.
FX Energy, Inc. (Nasdaq: FXEN) $6.15 as of 12/31/10
FX Energy is an independent oil and gas exploration and production company with production in the US and Poland. FX Energy has accumulated a large land position in known productive areas in Poland, assembled a sophisticated technical team, and generated a number of attractive gas prospects. We feel this is a great opportunity as Europe is short of natural gas and depends heavily on Russia. The Company's main exploration and production activity is focused on Poland's Permian Basin where the gas-bearing Rotliegend sandstone is a direct analog to the Southern Gas Basin offshore England. FX Energy also recently announced the start of production from its KSK production project in Poland which will boost company-wide production by more than 60%. In 2011 the company’s pace of operations will increase substantially, supported by growing cash flow, an expanded credit facility and joint venture activity. FX Energy has considerable momentum and we feel the stock will break out to new levels.
Houston American Energy Corp. (AMEX: HUSA) $18.09 as of 12/31/10
Houston American Energy Corp. is an oil and gas exploration company whose activities are focused on several high impact, large reserve potential concessions in the South American country of Colombia. The company has partnered up with SK Energy Co. LTD to develop the highly prolific CPO 4 Block which is situated along the productive western margin of the Llanos Basin in Colombia. Houston America now controls 37% of the CPO 4 Block which encompasses the same structure as the Corcel Block where well rates of between 2,000 to 15,000 barrels of oil per day have been announced. Recently completed advanced 3-D seismic has identified over 895,000 gross acres with more than 50 drilling prospects. Houston America also has a substantial farmout agreement with Shona Energy (Colombia) LTD to earn a 12.5% interest in the Serrania Block, which is adjacent to the recent Ombu discovery which contains an estimated 1 billion barrels of oil. Houston American has a 12.5% interest in three additional concessions in the surrounding area with Hupecol (Colombia). The company has a strong balance sheet with approximately $35 million cash and no debt. Houston American has been one of our top performers for the last 2 years in a row. Although the stock has moved up significantly, we feel that if the company can execute at CPO4 we will see another terrific year in the stock price.
Industrial Nanotech Inc. (INTK.PK) $0.039 as of 12/31/10
Industrial Nanotech Inc. is a global nanoscience solutions and research leader and member of the U.S. Greenbuilding Council, the American Solar Energy Society, and an official ALLY organization with the U.S. Dept. of Energy "Save Energy Now" program. The Company develops and commercializes new and innovative applications for sustainable nanotechnology which are sold worldwide and offer value in cost savings, energy savings and carbon footprint reduction. Nansulate(R) is the Company's patented product line of award winning, specialty coatings containing a nanotechnology based material and which are well-documented to provide the combined performance qualities of thermal insulation, corrosion prevention, resistance to mold growth, fire resistance, chemical resistance and lead encapsulation in an environmentally safe, water-based, coating formulation. The Nansulate(R) Product Line includes industrial, residential, agricultural and solar thermal insulation coatings. The company is experiencing huge growth in exports of their patented Nansulate line of nanotechnology-based energy saving and asset protection coatings. One order from the UK Manufacturer, Coates Plc alone topped over $800,000.00. Michael Schofer, Coats Chief Supply Chain Officer, said, "As a business we have an ongoing commitment to reducing our impact on the environment and continuously improving the working conditions in our facilities worldwide. Having comprehensively tested Nansulate coatings we found they significantly reduced process energy while standing up to the harsh environment of an industrial dye house. We anticipate the change will have a dual effect: reducing our process steam consumption by over ten percent - and therefore our carbon footprint by around two percent - and significantly improving the working conditions in our dye houses, which is great news for both our business and the environment." We think Industrial Nanotech is just starting to scratch the surface in the Manufacturing sector. Corporations have started taking the task of reducing energy consumption and costs very seriously for both economic efficiencies and their increased sense of environmental responsibility. Industrial Nanotech also recently announced expansion into China in partnership with the company's Saudi Arabian distributor. I have had the opportunity to spend a bit of time with CEO Stuart Burchill and I feel good about his plan, his abilities and his commitment to the company. The company has spent considerable time and money to get to this point and if sales continue to ramp up we feel the stock could move up very quickly.
Manas Petroleum Corp. (OTCBB: MNAP) $0.60 as of 12/31/10
Manas Petroleum is an international oil and gas company with primary focus on exploration and development in south-eastern Europe, Central Asia, and Mongolia. Since inception, Manas has acquired a spectacular portfolio of high impact exploration properties. Every one of the Company’s giant projects are moving forward and maturing toward production. In Albania, Manas participates in a 1.7 million acre exploration project through its equity interest in Petromanas Energy Inc., a Canadian public company. Petromanas Energy Inc., in which Manas holds a 32.29% interest, continued its exploration activities in Albania: The technical seismic acquisition of 105 km in block E in Albania was completed on November 10, 2010. This was to further determine the structural definition of the West Rova, Rova and Papri prospects and adds to around 1,300 km of existing seismic previously acquired by Albpetrol and Coparex and partially reprocessed by DWM Petroleum AG. The new seismic fulfils the minimum work commitment of the first exploration period of the production sharing contract for blocks D and E. In addition Petromanas Energy has prepared a seismic program for blocks 2 and 3 in order to further determine the structural definition of the South Shpiragu 1, South Shpiragu 2 prospects and the Krasi lead. The new seismic in blocks 2 and 3 will be tied to the existing Shpiragu well in order to allow a time-depth correlation of the South Shpiragu prospects.
In Kyrgyzstan, Manas has signed a $54 million USD farm-out agreement with Santos LTD ADR, covering 1.2 billion barrels in place (Scott Pickford, 2005). Santos will continue to drill with Manas on their 6 shallow and deep well programs in 2011. Manas' Development of its license in Tajikistan is now covered by an option farm-in agreement with Santos. In Mongolia Manas intends to use the recently completed 2D seismic data to improve its technical database and its chance of drilling a successful exploration well. After interpretation of the full dataset, Manas will decide whether it is ready to drill one or more exploration wells or that it needs to acquire 3D seismic to define the drilling prospects in better detail. Depending on this decision, Manas hopes to spud the first well in 2011.
The company has an excellent balance sheet with substantial liquid assets and zero debt. Additionally, to expose Manas to a much larger and more sophisticated audience, the Company is continuing to take the necessary steps to become listed on the TSX Venture stock exchange. Importantly, next year looks set to see a very significant acceleration of Manas Petroleum’s activities and surely this company has the greatest upside potential on our list.
With the above in mind here is the basic concept of the opportunity; the stock right now is trading with a market cap of about $68 million. Manas' equity stake in Petromanas alone is currently worth $80 million. In addition the company has a 74% interest in two large exploration blocks in Mongolia that literally surround two producing oil fields that are operated by Sinopec. Manas also has two giant oil prospects in the Central Asian countries of Kyrgyzstan and Tajikistan both of which are either farmed or optioned out to the Australian giant Santos, Ltd. We feel the company is trading at a substantial discount to the value of their assets. It reminds me of American Oil & Gas (AEZ) which in 2009 we added to our top 10 at $.71 per share. At that time AEZ was also trading at less than cash value with significant acreage assets worth many times its market cap. AEZ was recently taken over by Hess Corp with a value today of over $12 per share. That being said, we believe Manas is at the front end of a huge breakout.
Wound Management Technologies, Inc. (OTCBB: WNDM) $0.40 as of 12/31/10
Wound Management Technologies, Inc., through its subsidiaries, distributes collagen-based wound care products. An aging population, increased prevalence of diabetes and new advancements in bio-technologies are helping to drive the demand for wound care products. According to the American Diabetes Association, the total prevalence of diabetes is rising significantly and now affects over 27 million Americans. The incidence of chronic wounds is rising significantly. Foot ulcers are the number one precursor to a loss of a lower limb. In fact, more than 60% of non traumatic lower limb amputations occur in people with diabetes. Controlling the complications of diabetes is costly for the health care industry, while painful and distressing to the patient. New bio-available technologies like the Activated Collagen in CellerateRx® are helping to advance healthcare for diabetics and improve the management of all types of chronic wounds. Wound Management Technologies holds the exclusive worldwide rights to market and distribute CellerateRx®, which represents a revolutionary new form of biologically available collagen. Up until recently, collagen was presented to the body in an intact, native form, which required time for the body to break it down and prepare the collagen for use. The patented Activated Collagen found in CellerateRx® is uniquely prepared for immediate use by the body and actually helps kick-start the healing process inside the wound bed. CellerateRx® comes in gel and powder forms, both of which are FDA cleared for use as a medical device for the management of chronic and acute wounds, as well as skin ulcers associated with diabetes, infections, 1st and 2nd degree burns and post surgical wounds. CellerateRx® products are used by wound care providers of all types. Wound Management Technologies target market is compromised of podiatrists and other physicians, clinics, hospitals, home care, long-term care, Durable Medical Equipment (DME) and other medical suppliers. Its products are approved for reimbursement under Medicare Part B, in addition to many insurers. The company also holds patents for a resorbable bone wax and delivery system for orthopedic bone void fillers. With sales of CellerateRx® ramping up, this company appears to be well on the way to becoming a major success.
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