Dr. Kent Moors’ “Tiny ‘Pick & Shovel’ Play with Homerun Potential”

By Travis Johnson, Stock Gumshoe, June 17, 2014

Dr. Kent Moors is out with a new ad pitch for his Micro Energy Trader, which is what they call the “swing for the fences” advisory from Dr. Moors that lets him recommend teensy, thinly traded companies.

And yes, there’s always the danger that a note about such stocks from your favorite Gumshoe could blow them up — so if it turns out that the stocks teased by Moors are ones that you fancy, patience is probably the watchword… microcap stocks that spike up after getting a mention in this space (which is rare enough) usually come back to earth pretty quickly. Depends on what the stock is and whether it looks appealing, of course, so let’s get into it and find out.

Here’s how the publisher describes this newsletter:

Micro Energy Trader is definitely a “swing for the bleachers” type of service. You’re going to get opportunities to take small amounts of money (say, $1,000 to $5,000) and turn them into $20,000 or $50,000. Occasionally, we’ll only get to second or third base, and sometimes we’ll get thrown out at first. But we’re going for the homeruns, like Kodiak Oil & Gas… an extraordinary opportunity that turned every $5,000 into $338,157 in just three years.”

So of course, anyone reading that sees only the $1,000 to $50,000 trade and starts drooling — presumably, when you’re talking about smaller and generally riskier companies, the “thrown out at first” is a reference to losing half or all of your investment, so if even the publisher is pitching it as a home-run seeking services you have to know that the chances of substantial losses are large.

More about what Moors is picking here…

“The best part is, you don’t have to risk a lot to make a lot… Chances at Making up to $50,000 with a Modest $1,000 Investment

“Hundreds of regular people have made very handsome gains in this special piece of the market… just by putting $1,000 to $5,000 into one or two of these little stocks.

“That’s all it takes….

“… experienced energy players who know what they’re doing can make incredible money on stocks like these….

“And now, for the first time, you’ll know exactly which ones are most likely to soar…

“A Top Secret Dossier of Micro Energy Stocks”

OK, so that’s certainly laying it on a bit thick. But still, I’m curious to find out which stock he’s touting today.

He teases a couple of them, but one in particular is apparently newly covered by his service, added just last week, so we’ll look for that one today and move on to the others in the future if there’s anything of interest.

Here’s how they get us salivating:

“A Tiny ‘Pick & Shovel’ Play with Homerun Potential

“He recommended this first company just a few days ago, on June 6th, when shares were trading for less than $5 apiece. By next June, of course, you’ll be lucky to get them under $10, as its 12-month, 124% growth projection is extremely conservative.”

Some more hints about what this company does:

“niche, high-margin oilfield services in Texas, where demand for drilling equipment and ‘fluid logistics’ expertise is soaring…

“It provides these services using the newest cutting-edge technology.

“Mobile frac tanks, salt water disposal wells, the most advanced ‘tubing testers’ in the country, the youngest and most modern rig fleet in the industry…”

And we get some of the names of their clients:

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“Apache Corporation, Chesapeake Energy, ConocoPhillips, Devon Energy, Dominion Resources, EOG Resources…

“Big, well-known firms are paying this small, ‘up-and-coming’ firm for one simple reason: It specializes in the richest fields in Texas. Basins like the Austin Chalk, the Buda Lime, the Eagle Ford, the Permian, and – on the eastern side of the state – the Rodessa Lime.”

So who is this?

The Mighty, Mighty Thinkolator chugged away at this one, and the clues are not definitive enough that we can be 100% certain… but I’m now 99% sure Moors is touting Forbes Energy Services (FES), which is a very small company that is indeed focused on “advanced” drilling and well services in Texas (more than 90% of their revenue comes from the state). They do have a substantial commitment to the fluids handling business, including a large fleet of vacuum trucks, and they do list all of those well-known companies as being among their clients.

It’s not as small as the market cap would indicate — the stock says it’s a $100 million company — but it is small. If you include their sizable debt position, the enterprise value is more than $350 million, with the biggest chunk of that being a $280 million bond on which they pay 9% until maturity in 2019. So there is a substantial debt service that hits their income statement, with about $28 million a year going to paying interest, and that is enough to turn what little operating income they’ve had into losses recently — other than a few cents per share in profits in 2012, they’ve not had a year when they’ve made money since they went public right at the very peak of the oil market in the Summer of 2008.

So it was definitely a lousy stock to buy when the company was created in its current form in June, 2008, but that’s in the past — what’s up with them now? The stock has been pretty flat for about two years, they have plenty of cash flow to cover their debt service right now, but any future improvement in the stock would likely have to be driven by actual earnings.

2013 was a pretty weak year for FES, probably largely because of overcapacity in many parts of the land-based drilling and oilfield services businesses that investors probably noticed hit a whole raft of stocks. The big buildup coming out of the financial crisis, with so many folks looking to capitalize on the shale fracking revolution, led to a lot of rigs and fracking units left idled and prices weak for suppliers in many areas.

You can see some “color” on the company and their assessment of their own prospects in their investor presentation, which is a little out of date now, and in their more recent first quarter highlights reported in a press release here.

The two analysts who follow FES think that the company will grow revenues by 7% this year and 9% next year, and that this will be enough to bring profits back to the table with a few cents per share of profits in 2015. They might be right, I don’t know, but there’s a wide variation to get that average — one analyst is predicting a loss, one a profit, and I expect it probably depends as much on oil prices and demand for production equipment and well services this year. If oil price stay high and producers ramp up investment to try to ramp up production while prices are high, all the oil services companies will do well.

So… I’ll defer to Dr. Moors on whether or not this company offers products with substantial “premium” qualities or has a strong niche, I don’t know enough about the specifics of this business to guess at that. But their big debt position means they are quite levered to improving demand for their fluid and tubing and other well services — if that demand goes up dramatically and pricing and utilization improve, it could translate into rapid earnings growth pretty quickly. The reverse is true, too, as we’ve seen for the past two years — if demand is a little bit slack, debt service sucks up their margins.

It’s clearly a speculation — right now at about $4.25 they’re priced as if either demand will increase considerably, or as if someone is going to want to buy them out for their assets — otherwise, you don’t pay 75-100X possible 2015 earnings for a company that hasn’t been consistently profitable or consistently growing in recent years. I’m not sure what Moors sees in this one, but hopefully they are indeed a specialized niche player who can reward investors and they are certainly in hot areas in the Eagle Ford and the Permian basin … but at first glance, it doesn’t look all that appealing to me. If I dig deeper and get more interested, I’ll let you know… meantime, feel free to chime in with a comment below and let us know what you think — yeah or nay on Forbes Energy Services?

P.S. The only other time we covered Dr. Moors’ Micro Energy Trader was back in December 2012, with mixed results — one of the picks, GMX Resources, was a dwindling disaster that never recovered, the other, Hercules Offshore, would have provided a profit opportunity over the following months but is now about the same price it was then.


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17 Comments
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dlaprete
Member
dlaprete
June 17, 2014 6:16 pm

Thanks once again for an insightful article!

👍 3
willran2
willran2
June 17, 2014 6:38 pm

Travis—-Thank you for your research.

👍 150
who noze
Guest
who noze
June 17, 2014 8:36 pm

hercules ooff shore w// be moing shortly largest off sh drillling operation gulf of mexico trouble was they were are shollow drilling which was a disater but now coming back one rig being built is already leased

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