PSB Monthly Issue October 2015

| October 1, 2015

The 5 Riskiest Trades You Can Make This Year

This month I’m going out on a limb.


Not so much a limb, as a thin wire that’s fraying at the edges.

This month I’m proposing we make one of the riskiest trades I’ve ever recommended.

As a matter of fact, let me start out with a warning… The stocks I’m going to recommend to you have a real chance of going to ZERO.

That’s right… if you buy these stocks, you might lose every penny you invest.

I’m not joking… and I’m not exaggerating.  

I know what you’re thinking…

If these trades are so risky, then why am I suggesting we take a look?

Well, it’s the profit potential.

While the risk is huge, the reward is even bigger!  It’s a calculated risk, and one that I think is worthy of a shot.

Right now I see a trade opportunity, but you should only keep reading if you’re prepared to lose everything.  

So don’t invest your life savings.

These investment ideas are for your play money… your lottery money, your fun money.

So, with the warning out of the way, let’s get started…


The Oil & Gas Industry

Right now there’s a huge upheaval in the oil & gas industry.

Just look at the chart of oil prices.

oil prices

If you’ve read anything about oil prices in the last few days, weeks, months, or years, you already know that oil prices are sliding.

Great news for us when we go to the gas station to fill up.  

But not such good news for oil and gas companies who are relying on high oil prices to create fat profits.

While prices are down big time… I think they’ve stabilized.


First, the chart.  If you look, the chart shows prices squeezed between the $40 and $60 level.  It looks to me to be an area of consolidation.  Only time will tell, and I might be wrong… but the potential for support in this area is strong.

Second, consumption is rising.  According to the US Department of Transportation, “U.S. driving topped 1.82 trillion miles in the year’s first seven months…”  That means Americans are driving more, using more gas, and that creates a demand for oil.  Over time, demand for oil in the US will climb, supporting oil prices.

Third, oil prices are depressed because of decreasing emerging markets growth rates.  Because of recessions in China and other emerging markets, demand for oil has slowed… this puts downward pressure on the price.   But, as China’s economy rebounds, demand will increase… and prices will rise!

Am I trying to pick a bottom in oil?  Of course, who doesn’t try.

Am I right?

Maybe… maybe not.

In all likelihood, we might fall a bit further… but in my thinking, we’re close to… if not at the bottom, of the oil downdraft.

So, now’s the time to strike.

We might be early to this party, but I’d rather be early than miss the dance.

The bottom line is, I think now’s the time to look at the riskiest oil and gas companies.  When the industry starts to rebound, these battered and bruised companies will jump in price, and we want to be on board for that rocketship ride!

But identifying the perfect company can be difficult.


The Riskiest Companies In The Industry

As you look at the oil and gas industry, you’ll see there’s three types of companies.

  1. the big leaders
  2. the survivors
  3. the death’s door group

What’s the difference?

The big leaders are companies like EXXON and Chevron who you know will survive no matter what.  They’re the big guys on the block… they will survive, even if the price of oil continues to drop.  Size is on their side.

The survivors are next…

The survivors are the smaller players who because of their business or balance sheet have the strength to weather the storm.  Their stock prices are down big, but the thought of these companies being at risk… well, it’s not even on the table.

That brings us to the death’s door group…

This is the group I’m looking at right now.  

These are the companies that have articles and news stories written about their potential bankruptcy.  These are the companies that investors are fleeing like rats from a sinking ship!

Why are these companies at risk?

The number one reason cited by analysts is liquidity.

In other words, they don’t have the cash to pay their bills.  These are the companies who after graduating from college went out and bought a new house, car, boat, new wardrobe, and ran up the credit cards… borrowing every penny they could.  Then the next day they found out the boss decided to cut their pay.  Paying that debt is hard.

These death’s door companies are in the exact same situation.

Some will fail and file for bankruptcy… others will struggle and survive and become better businesses because of the experience.

Now, here’s the twist.

This time of the year is critical for oil companies. You see, this time of year is when the companies sit down with their banks and renegotiate their credit facilities.

If the banks take a hard line, they could force the companies into bankruptcy.

If the banks and management teams can work out the details… or if the energy companies show enough assets to satisfy the bankers, the executioner’s axe will go unused for a short while longer.


The Huge Risks In These Trades

So here’s the risk…

Oil prices continue to fall, the company’s profits are squeezed and they end up in bankruptcy.


The bankers refuse to roll lines of credit or extend terms… and their companies end up in bankruptcy


The normal risks of investing in tiny stocks take hold and the companies end up in bankruptcy.

In any of those situations, the stock price goes to ZERO.  (Can you tell I’m trying to warn you of the risks.)


The Huge Upside Potential

This is not something to take lightly… but the upside potential is ridiculous in many of these businesses.  If they can manage the minefields of renegotiating their debt… if they can preserve their profits… if they can keep the banks happy… and if we see a jump in oil prices, the stocks could skyrocket.

How much?

Not 100% or 200%…

But 1,000%, 5,000%, or even 10,000%.

Yes… I can see a situation where the companies survive the debt restructuring… they preserve the business and their liquidity… China and emerging markets gradually consume more oil… OPEC cuts production… and prices rise.

Depending on the news, you could see these stocks jump 100% in a week or two… and 1,000% in a year.


The Riskiest Companies To Consider TODAY!

Enough talk… let’s pick some winners.

Remember these are lottery tickets… Oh and in full disclosure, I own some of these stocks and I’m planning on buying more in the next few days (after you’ve had time to act).


Company #1 – BUY Sandridge Energy $SD up to $0.40

Sandridge Energy


Company #2 – BUY Magnum Hunter $MHR up to $0.48

Magnum Hunter


Company #3 – BUY Halcon Resources $HK up to $0.69

Halcon Resources


Company #4 – BUY Energy XXI $EXXI up to $1.25

Energy XXI


Company #5 – BUY Linn Energy $LINE up to $2.99

Linn Energy


Position Updates

  • Broadwind Energy (BWEN) – We crossed below our stop loss that was set at 2.75 a share.  If you haven’t already, exit the trade now to conserve capital.
  • OMNOVA Solutions (OMN) – We exited this trade in our last update.

Category: PSB Monthly Issues

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