My favourite stock for 2013

If the post-crisis years tell us anything at all, it’s that we’re probably better off in the markets than out of them. Despite all the risks and headwinds, it’s paid to stay invested.

I suspect 2013 will be much the same. The economy might be a bit of a wreck, but with the authorities now comfortable in the role of ‘accommodative easer’, it might trundle on for another year. So it doesn’t make a lot of sense to be too cautious.

And anyway – where should the cautious go? US dollars, government bonds, cash? None of these look particularly safe or appealing.

If 2013 is to take on the same sideways movement as 2011 and 2012, it’s likely to be another year for the stock-pickers. Though a FTSE 100 tracker offers a yield of about 3% (after fees), stock picking could give you an awful lot more. 

Recently, I announced my favourite stock tip for 2013: HRT Participacoes. It had an awful 2012, but by my reckoning, 2013 looks likely to be a much happier year. In fact, there are four things I’m hoping for in 2013…

Four New Year drivers for the share price

Having flirted with the $10 level in 2011, HRT has by now lost some 90% of its value. Trading at just over $1, HRT looks hopelessly oversold to me – and that’s why I’ve recommended it.

Much of the price collapse over the last year or so comes down to fears that HRT will run out of cash before it finds oil. Oil exploration is an expensive business. And to lay off risk, HRT needs to ‘farm-out’ some of its projects to the oil industry big boys.

HRT has two major drill programmes. The first is in Brazil’s Amazon basin; the second is off the Namibian coast. The company has already got a fantastic partner (BP TNK) in Brazil, and recently announced that it’s working with Portuguese oil company GALP in a limited number of its Namibian fields.

My hope is for a major deal to farm out more of its Namibian assets early in the new year. Any news would surely put the stock on a sounder financial footing. The idea is that the big oil partner farming-in will carry the majority of the exploration costs in return for their share of the venture. After all, HRT has already spent an awful lot of money on the exploration rights and in collecting the preparatory seismic data and evaluating it.

Even if HRT has to carry the full costs of its African drills alone, it’ll have enough money to see it well into 2014. But a sizeable farm-in could add years to its cash position. I suspect good news will cut the current risk-discount considerably.

The second driver for the stock relates to the significant gas discoveries HRT made last year in the Amazon. As things stand, there’s little they can do with the massive gas fields found in the heart of the Amazonian jungle. It will need some considerable investment in infrastructure to make use of the gas.

A team led by Blair Sanderson (former TNK-BP) is currently working with government and Petrobras (Brazil’s national oil co) on how to push things forward. News about their findings should be published in early 2013 – and a credible plan will undoubtedly bring some cheer to shareholders. Again, it’s all to do with establishing cash-flow that will make HRT a long-term proposition. Moving from explorer, to oil company.

The next two drivers for the stock relate to HRT’s 2013 drill programme.

Though it’s found loads of gas in the Amazon, the Holy Grail will be striking oil. That’s what the market wants to see. Oil is much easier to transport than gas and it could start to bring home the bacon almost immediately. And management feel they’re getting closer. The latest drill (HRT-10) is close to finishing. We could still get some good news this side of the new year.

An oil find will certainly make my 2012! But more likely it’ll be the drills scheduled for 2013 that could provide the breakthrough.

But the big event that would really send these shares into orbit will be what (if anything) it discovers in Africa. HRT is targeting 25.5 billion (yes, that’s billion!) barrels off the shore of Namibia. Though this is speculative, the company has done as much as it can by way of preparatory work in establishing its drill sites. A recent presentation (you can download it here) suggests that each of the three drills scheduled for early 2013 has around a 25% chance of success.

Come spring, the first results will start to come in. Given the current share price, I would say that bad news is already priced in. Good news, on the other hand, could set the stock alight.

After a pretty torrid 2012, HRT has saved up any good news for 2013. Here’s looking forward with excitement!

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  • Jono

    Don’t gamble more than you can afford to lose – 3 wells @ 25% CoS each could mean all three are dry/uncommercial, and the value will plunge again! Exploration is a high risk/high reward game!

  • Dean

    Hi Bengt … Just read your artical on HRT … can you tell, me are you referring to (CVE:HRP) or (PINK:HRTPY) as I would be interested in buying some …..

  • bengt

    Jono

    There’s no doubt that 3 dusters will be bad news. But as I say, I think that’s pretty much in the price already – maybe it’ll take a third off the current price if the initial (and remember, this is just the initial) drills are dry.

    But to my mind (and this is just an opinion), finding oil in Namibia could shift the share price up many-fold. This is a gamble – but I like to think of it as an educated gamble.

    Dean – both the codes you mention relate to the same stock. It’s traded in New York (pink), Bovespa and Canada’s TSX.

    Bengt

  • Tim

    Bengt
    I see these are listed on UK exchange as GDRs. Is there a risk in buying these (ie reducing currency risk) or would you look at buying directly on Toronto market?
    Thanks

  • NeutronWarp9

    And one of my favourite stocks of 2012 was Chariot Oil & Gas (CHAR). @ £1 in January with lots of lovely Namibian ”the place to be” upside, @ £2 in March… and after 2 apparent dusters now languishing @ 28p – before the next surge. All prices are per share, but with oil explorers…
    Lots of rollercoaster thrills with these things and exciting 2D and 3D surveys to get us all frothing before judgment day. Given very promising 3Ds, if you adopt a rose-tinted 1 in 4 chance of success this suggests how much money you should invest.

  • Ideas Man

    This reminds me of a film with Christian Slater and oil trading, The Deal, it was interesting about a potential oil discovery/project.

    It was all fiction but it made me take my chips off the table very rapidly.

  • Paul

    Or alternatively you could buy GKP, where they have found more than 12billion barrels of oil, with more to come. When the court case is done and dusted by end of Feb, expect a big re rating, and a biding war to commence. Kurdistan is where the big money is going in 2013….. Chevron, Exxon, Genel, Shell, Sinopec, already in Kurdistan, need i say more. Many Aim exploration stocks are cheap at the minute….

  • Jon Wan

    My 2013 share tip would be China Food Company Plc currently about 16 pence per share the stock has be dragged down by a prolonged disposal. Once these issues are cleared you have a stong soya sauce business is a vast growth market. China Food could easily reach 90 pence per share in 1 months strong buy.

  • Jack

    hi, how would you go about buying these shares? strugling to find the share via Halifax and the FT… that goes for any non-mainstream stocks are there any recommended co’s i’ve always struggled in this respect – spend ages researching a co and then can’t find anywhere to buy them! what about hargreaves lansdwone or the like? thanks

  • RDF

    Re Nos 9 Jack. I eventually found and bought them on TD Waterhouse. Am finding this broker the best for overseas stock (compared to Barclays International Trading, Hargreaves and Selftrade)

  • Nick

    Dear Bengt,
    Would it be possible to have a very brief update, if only to confirm that you haven’t changed your view on HRT?
    Many thanks,
    Nick

  • Josh

    I see that HRT has plunged to a new low having broadly halved in value since the start of the year. The Boardroom changes and Nambia result seem to have caused this. Yesterday an investor has increased their stake to over 5%. Any views on what went wrong Bengt and is this a buying opportunity?

  • baz

    Favourite stock of 2013, worth 25%of the then tip price, not unusual for oil exploration co’s but why no follow up from our esteemed author?
    If it had doubled we would have heard, if it quarters he seems as quiet as a mouse, odd that

  • Josh

    When I last wrote C$ 2.4 was the price it is now C$ 0.72. My bcomplaint about this tip is not that it went wrong but Bengt has seemingly made no attempt to find out why and inform his followers.

    A little more rigor is needed.


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