“‘Unconventional’ Homerun Potential… for 75 Cents a Share” (Kent Moors)

Sniffing out some of the stocks teased by the new Micro Energy Trader

By Travis Johnson, Stock Gumshoe, December 4, 2012

The latest pitch from Dr. Kent Moors is for a new publication, a micro-cap energy stock trading newsletter and alert service called Micro Energy Trader. And though they say they’re restricting their subscriber list to 400 people (list price: $5,000 a pop — it’s “half off” right now), that’s more than enough to make some big waves with some of the teensy tiny picks they’re teasing …

… so I’ll start you off not only with my warning, that the stocks I’m going to try to reveal for you today could easily get all jiggly just because I write about them for you, and add on the fact that this big promotional campaign for the new newsletter, which will probably bring the new subscribers who might want to jump into the shares right away, seems almost guaranteed to distort the market if these are really microcap stocks (ie, stocks with market caps down below a couple hundred million dollars).

In fact, they were worried enough about that that they put it right in the lead of their letter, too — here’s how they put it:

“The firms you’re going to hear about in this presentation are some of the smallest publically traded companies in the stock market.

“So there are two important things you should know right up front:

  • Stocks that trade for less than $1 a share come with some special risks; and
  • Not all companies of this size pan out. To be sure, many penny stocks are penny stocks for a reason…

That said, we believe your odds of success in this powerful universe have just been greatly increased…”

So there’s your “beware, here be monsters!” tease — you’re forewarned, but you almost can’t help but read on to see what those “special risks” are … after all, you’re a clever sort who wouldn’t get sucked in, right? Yep, me too.

The basic idea is that Dr. Moors, who is a political science professor at Duquesne and a well-traveled oil industry consultant, has a special insight into some companies (they call it a “A Top Secret Dossier of Micro Energy Stocks”) that are so very tiny that he can’t recommend them to subscribers of his other, lower-priced newsletters — they would have too big an impact on the price, and it would be too hard for a large group to get in and out of small issues like the ones he’s apparently teasing … which, going by the mentions in the ad, included some absolutely absurdly tiny companies down in the $10-20 million range.

Such stocks are fun sometimes, to be sure, though lots of them probably shouldn’t be public and you often have to be ready for them to move 50% in a day even without news. These are the kinds of stocks that give unsuspecting new investors a lesson in the false comfort of tight stop losses — if no one’s buying the stock, you can’t easily sell it for your price as it’s falling. And trading in and out and paying close attention is always critical with microcaps if you like to keep a grip on your money — even one of the “win” stories they tease in this particular ad was a pick that bounced last Fall and Moors apparently harvested a nice quick gain … but it was bankrupt soon after (that was Ener1, which spiked from 14 cents to 39 cents on a CEO change last September, we’re told … bankruptcy has since driven the shares under a penny).

But anyway, enough about the warnings and dire consequences of mucking around with itsy bitsy stocks — which ones are being teased here? We know you’re among the most discerning and discriminating readers in investordom — you’re here, after all — so we can trust you to make your own choices and not do something crazy to drive the stocks up or down.

Assuming we can identify them for you, that is. So … on to the clues!

“Unconventional” Homerun Potential… for 75 Cents a Share

“The first firm topping his list is an exploration and production company. It specializes in unconventional shale oil.

“And it’s poised for a major swing to the upside.

“That’s because it’s what is known as a ‘resource rich’ operator. It has significant reserves spread out over several different basins – the Bakken and Spanish Three Forks in North Dakota, the DJ formation in Wyoming (the highly promising and much discussed Niobrara basin), and the Haynesville and Cotton Valley in Texas….

“With NYMEX West Texas Intermediate benchmark crude north of $80 a barrel, available shale oil is incredibly desirable. And that puts this small company right in the center of the action – and ready for a sudden pop.

“Now, here’s the amazing part of the story…

“Today shares of this company can be bought for just 75 cents each. That’s 1,000 shares for just $750.

“So how high could it go?

“Back in 2008, when oil prices really skyrocketed, this stock was selling for a high of $84 a share.

“That means that if it runs back up to just a quarter of that, to $21, an initial $750 stake would be worth $21,000.

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“That’s the sort of risk-reward ratio that is possible with these micro energy shares.”

So … who is this? Toss all that into the mighty, mighty Thinkolator and we learn that this is … GMX Resources (GMXR)

A quick look at the financials tells you why this once-$80 stock is trading at 75 cents (OK, it’s not 75 cents anymore either — that was a few weeks ago, it’s now down at 57 cents): They have $400 million in debt, $15 million in cash, and they burn through that cash pretty quickly with investments and oilfield expenses. Oh, and they just approved a reverse split, which is not always a bad thing but it does bring the stench of