My excuses for these 6 picks:
(1) CHLN.OB. It is very cheap on a forward base. it is traded at forward PE=3.3 for 08 and over 100% earning growth. Chinese housing market is booming. Expect that CHLN.OB will grow around 60% annually for the next 4 years.
(2) IV.V. Currently, they produce 840 BOE/day. They expect to grow to 3,300 - 4,700 BOE/day in the next 12 months. Strong growth and relatively long reserve life. It is also cheap for trading at 2.5 x cash flow for the next 4 quarters using $70 / barrel for calculation.
(2) CNEH.OB. Anticipate explosive growth in both revenue and earning in the next 2 quarters and the following quarters as they plan to drill more wells late this year. The numbers may be calculated as follow:
(a) Q2/07 actual production of 8,365 tons of crude oil with $4.1 millions revenue.
(b) Q3/07. Based on 1600 barrels per day production from the latest PR news, The production volume would be around 1600 x 60 days = 96,000 barrels or 12,600 tons, about 50% higher than Q2.
(c) Q4/07. From the latest PR news, they are having more than 110 wells in production late August. So in Q4, all 110 wells will contribute to the production. They produced 19 barrels per well in their initial 20 wells in 04 and 05. The 1st 3 new wells they drilled had a production of 35-36 barrels per well per day. To be conservative, I still use an average of 19 barrels per well per day for calculation. The production for Q4 will be: 110 wells x 19 barrels x 60 days = 125,400 barrels or 16,550 tons, about 31% higher than Q3.
Assuming $70 per barrel for Q3 and Q4, the sequential grow in revenue will be:
Q2/07, $4.1 millions
Q3/07, $6.7 millions
Q4/07, $8.8 millions
The annualized revenue for 08 will be 4 x 8.8 = 35 millions with earning estimated about 10-12 millions and cash flow of about 17-18 millions, assuming no more new wells added in 08.
It is still cheap on a foward basis. It is traded at PE 5 - 6 and 3.3 x cash flow if no more wells are driled late this year and early next year. If they drill more wells (very likely), the valuation is even lower.
(4) CHNG.OB. It is traded at PE14 for 07 and PE9 for 08. It is not very cheap, but the growth is very impressive with 70% grow for both top and bottom lines. It looks like that the high grow will continue due to the benefit of using NG for reduction of air polution and lack of competition.
(5) SNEN.OB Similar to CHNG.OB, great business, monopoly type of business. They expect to grow 70% for 07 and 08. It is traded at similar valuation as CHNG.OB. Their 1st 3 CNG stations are expected to be open this or next month, which may be the catalyst to pop the stock.
(6) Cash. Plan to add cash to whoever performs the best as listed above after 2 weeks.
