ENERGY CORRECTION?

PKZ

PKZ got partially stopped out this morning. This is one of those securities that I have a hard time to make any money. Now it stopped me out, I am sure it will go straight up. (what else is new?). On the other hand, I am kind of like the idea to reduce the exposure on PKZ here and hold on a smaller position going forward. DII also breached my stop limit but did not got filled. I decide to cancel the stop as I believe the fundamentals remain intact and it remains under-valued.

I am in awe by the speed and intensity of this correction in energy and material sector. This is why you need to take profit regularly, regardless how much you love your stocks, just for days like these. Is this something more sinister than a simply correction? While nobody really knows, I remain positive of the overall market. If that is the case, this correction will present buying opportunities. Having said that, I would be hesitate to add more energy exposures.


PSI

Low-balling some PSI (11.25) here. The company is traded at approximately 13X of its 06 EPS, and the company is growing at about 10%-15%. It is in a reasonable stable industry, which seems to have turned around. The most recent earnings are good, outlook positive, and management is confident and optimistic. It is rather widely followed and one of fund managers’ favorite (although a frustrating one as well).

Also add some RGY (0.95) here, bravely against the trend of fierce profit-taking in the oil pitch. Why you may ask? Let’s see, the company is expecting to grow its production and CF by 50%, yet it is trade at 4.0X of its 04CF and about 2.8X of its 05CF. Its December exit production is already exceeding 1000 boe/d, which is its 05 production average. To me, this suggests the production growth is already in the bag and chance is pretty good that it will exceed the 05 production guidance. It is traded at about 25K/boe/d at its current production level and 18K/boe/d at its 05 production level. Valuation seems extremely low in comparison with other juniors. On the other hand, this is a very small stock (cap under $20 million), and obviously is rather speculative. Under current market environment, I feel safer if I pick only those under-valued juniors.