Tag - NYSE:PTR

We're going to open the mailbag again today and take a look at a stock that I've received multiple requests to check out. And I'm pleased to say that SmallCapInvestor Daily readers are starting to send in some great picks. Today's company is China North East Petroleum Holding (AMEX: NEP) and it is an oil exploration company with 247 producing wells on 4 oilfields in Northern China. The stock is currently trading around $10.45 per share and with 25.9 million shares outstanding the company has a market cap of $271 million.
This is an interesting company that has seen its stock rise 410% over the last 52-weeks, but I think there is still more upside to come for shares. This is a good one to run through my eight step process for analyzing small-cap stocks that could put big gains in your portfolio. I outline this process in my book The Small Cap Investor, and also included it in a recent article that you can read by clicking here.
When considering a potential investment the first step is to look for sectors that are experiencing growth, and China North East Petroleum passes with flying colors. There is no doubt that worldwide energy demand is growing and the fact that this company is located in China, an economy I'm very bullish on, is a big plus. Remember that this is a country that posted 8.5% GDP growth throughout 2009 when many countries were contracting.
Also, this company benefits from less competition then independent developers in other regions of the world and the Chinese oil industry is relatively immature. That means there is a ton of room for acquisitions of private players as well as lease agreements with big dogs like PetroChina (NYSE: PTR), a company with a market cap of $225 billion. Either way, massive opportunities exist for top line growth for China North.
We don't need to follow step two which calls for screening stocks once we've found a growing industry since this company comes by reader request. So let's just move on to checking the fundamentals of China North East Petroleum's operation.
I like what I see here too, management was able to navigate a tough year in 2009 when oil prices plummeted to a multi-year low near $35.00 a barrel. The company increased production and expanded into oil drilling, all while continuing to post a profit. It's drilling expansion came by way of the acquisition of private driller Song Yuan Tiancheng Drilling. The acquisition was done in October at a time when prices for many assets were still deflated and it effectively transformed China North into a diversified oil exploration and production company.