Top Picks from Jerome Hass:
Not many oil & gas related stocks that are trading near their 5-year high but there are a number of reasons why NXT is one of them. Firstly, oil & gas companies are desperately trying to reduce costs after a 50 percent drop in crude prices and NXT’s technology is 1/30th the cost of typical 3D & 2D seismic programs. Their technology helps oil & gas companies pinpoint their exploration efforts; it is not a substitute for traditional 3D & 2D seismic but instead it focuses their targets much more accurately. National oil & gas companies – which are revenue-maximizing, not profit-maximizing entities – want to increase production due to the fall in crude prices, in order to boost revenues to their respective governments. Second, NXT just signed a deal with a new client that is a national oil company. The $13 million deal should be completed by the end of Q3 with estimated gross margins of 80 percent. We believe the company is on the cusp of more of these types of deals in 2015 with Mexico, Pakistan and possibly Bolivia. We like NXT as an investment because it has very high gross margins (80-85 percent), no debt with approximately $6 million in cash, low overhead and operating costs, and a strong growth outlook. Finally, the company owns a library of data that it intends to monetize in the form of ‘verticals’. Without providing any capital of its own, NXT would supply exploration data for an area / region in exchange for a significant equity stake, rights to supply further exploration services, and a royalty income stream from production. None of this potential is yet priced into the stock.
