Thursday, August 1, 2013

An Oversold Opportunity?

Zodiac Exploration underfollowed, oversold, ready to pop |
Peter Epstein thinks Zodiac is a nice play as it looks for US listing.
By Peter Epstein, Special contributor

Zodiac Exploration (V.ZEX, Stock Forum) traded higher today, up 15% to 7.5 cents, on 3x normal trading volume. Word is definitely spreading about this oversold, underfollowed, misunderstood Venture Exchange-traded stock. Zodiac has zero debt and $17M in cash, equal to about $0.05/share. The company controls 71,000 net acres of highly prospective oil properties in California's highly prospective San Joaquin basin. The icing on the cake is that Zodiac has tax pools that are conservatively worth $0.04 per share. Therefore, the per-share value of the company's cash and tax pools are worth more than the current stock price, and investors still get 71,000 net acres for free.

I've been working hard on valuing Zodiac Exploration for the past few weeks. I have written about 80% of an article / report that values the company at between 25c-30c per share. This is my price target for Zodiac within 6-18 months. I strongly believe that a Major, of which there are many surrounding Zodiac, would pay 15c-20c today, or be forced to pay more later, upon further de-risking of the company.

Known Majors in the area include Hess, Shell, Chevron, Exxon  and OXY. Majors that should be interested, if not already involved, include -- Total, Statoil, COP, BP, Marathon Oil, Apache Corp and Anadarko Petroleum. Zodiac is no doubt working closely with Western and Meagher, evaluating multiple JV proposals and other highly significant corporate initiatives. With hard value of cash + tax pools worth 9-10 cents per share, I think Zodiac is grossly mispriced in the market.

I don't know when (or if) the stock will reach my 25c-30c target, but it could happen rather suddenly given the discussions that are presumably taking place.  RARELY does an investor get a shot at a 3-5 bagger (or more), possibly within months, yet still have hard fundamental downside ABOVE the current share price!

The recent announcement that Zodiac is seeking a U.S. listing should not be taken for granted. That will make a huge difference. Canadian investors in Venture Exchange stocks have been punished for over two years now. Understandably, some have had enough. U.S. investors will love this oil shale play with oil prices above $105 per barrel. I hate this phrase, but this seems like a "no brainer" to me. 

-Peter Epstein is a special contributor who has worked previously as a hedge fund manager, and who has been featured on sites such as on the topic of small and microcap natural resource companies.
Potential investors are advised to verify any claims, suggestions or statements independently before committing to investment decisions on the basis of any opinion column.

Full disclosure: Zodiac Exploration is a client of

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