ION Geophysical Corporation (fka IOGPQ)

[OilStockReport]

Three reasons to buy IO

1. The cycle is turning. In just two years, between January 2007 and January 2009, the price of oil skyrocketed from $55 a barrel up to nearly $150, and then promptly fell back below $40 a barrel. With oil now above $80 a barrel, companies like ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), and ConocoPhillips (NYSE: COP) are just beginning to increase spending on exploration and development. That means the companies that provide the picks and shovels are starting to see an uptick in demand. ION's advanced seismic technology is a must when exploring challenging environments like deepwater drilling in the Arctic and unconventional onshore plays like the Marcellus shale.

2. BGP should bring a lot of business. Last year ION formed a joint venture called INOVA with BGP, the largest seismic land contractor in the world. Along with PetroChina (NYSE: PTR), BGP is a subsidiary of China's largest oil and gas company, CNPC. ION contributed its equipment and technology, while BGP forked over the cash and crew to form a premier land seismic equipment company. That means a heck of a lot of future business for ION in China and all over the world, thanks to BGP's global reach. Having at least one large stable customer alleviates some of the risk when assessing future cash flows.

3. It's cheap. We want to buy a cyclical company like ION when its earnings multiple looks ludicrous or simply nonexistent -- as is the case now. ION has returned to profitability over the last two quarters, and it's expected to earn $0.35 next year and $0.60 in 2012. By 2012, I expect ION to operate in a more "normalized" environment, with healthy spending from its customers resulting in EBITDA near $235 million. With a price tag of $6.60 and a market cap of $1 billion, ION provides plenty of upside levered to a rebound in exploration. ION is not the best company in its industry – heck even, its industry is less than stellar. But with a healthy balance sheet and a formidable new partner, I think this stock is just too cheap to pass up.

http://www.fool.com/investing/general/2010/11/18/rising-star-buy-ion-geophysical.aspx