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How to Build Your 1,000% Portfolio Today

By Matt Badiali, editor, S&A Resource Report
Thursday, November 4, 2010

Last month, I showed you it's possible to make 1,000% as a "hoarder."
 
As shareholders of Seabridge Gold learned recently, this strategy – of buying hated, cheap resource assets in anticipation of higher prices – can result in astounding, ten-bagger gains.
 
We need to know all about "hoarding" right now because a similar situation may be setting up in the natural gas business. Natural gas prices – and natural gas stock prices – are in the basement right now. New drilling technologies have brought on a ton of new supply... but emerging demand for power generation and transportation could double gas prices in the coming years.
 
 
That's why it's time to start learning how to hoard "PUDs."
 
PUD stands for "Proven Undeveloped Reserves." These are undeveloped gas wells with zero exploration risk. Firms aren't extracting the gas, because prices are so low. Typically, PUDs are located in the middle of proven fields just waiting to be drilled.
 
Right now, the stock market is offering incredibly cheap PUDs.
 
The price of natural gas is so low, investors aren't willing to pay much at all for future production of PUDs. Companies only receive stock market value for their current productions and cash flows... So promising properties are selling for peanuts. There's zero investor interest in the stuff. Everybody thinks natural gas is dead.
 
We have a "Steve Sjuggerud" situation developing here. These assets are hated... they're cheap... But we don't yet have an uptrend in natural gas and natural gas stocks. It's early in this game – but not too early to start doing our homework. So let's check out some ideas on locating cheap PUDs...
 
Below is a table of natural gas producers that trade on the stock market. I figured out the price of each company's PUDs per share, in thousand cubic feet (MCF) equivalent increments. We want to buy massive amounts of PUDs as cheaply as possible.
 
Company
PUD per Share
Price per MCF
Galleon Energy
8 MCF
$ 0.50
ATP Oil and Gas
14 MCF
$ 1.01
Penn Virginia
11 MCF
$ 1.36
Petroleum Development Corp
22 MCF
$ 1.48
Goodrich Petroleum
7 MCF
$ 1.85
Berry Petroleum
15 MCF
$ 2.36
Sandridge Energy
2 MCF
$ 2.44
Chesapeake Energy
9 MCF
$ 2.39
EQT Corporation
15 MCF
$ 2.44
Energy XXI Bermuda
9 MCF
$ 2.44
 
This is a broad-brush approach, based on the price of the natural gas in the ground. (We didn't factor in debts, for example.) It gets us a rough idea of where to find values in gas.
 
That's the first step in putting together a portfolio that could return you 1,000% as natural gas prices emerge from this downturn.
 
I'm convinced natural gas will be a huge bull market in a few years. In a future essay, I'll dig deeper into some of these companies... I'll identify the best operators in the best regions of North America. I'll also show you how electrical and transportation demand could send their shares up hundreds – maybe thousands – of percent in the coming years. Stay tuned...
 
Good investing,
 
Matt Badiali




Further Reading:

For a story of how asset hoarding can lead to outrageous 1,000% gains, don't miss Matt's first "PUD" essay here: An Unusual Kind of Commodity Stock That Can Return 1,000%.
 
DailyWealth Classic: If you're new to DailyWealth – or you're looking for a refresher course on Sjug's investment style – check out the first "cheap, hated, uptrend" essay we ever published here. (The investment Steve mentioned has nearly tripled since then.)

Market Notes


THE FLOOR IS IN FOR THIS COMMODITY

Once again, natural gas just told us it doesn't like the $3 area...
 
For more than a year, we've been referring to natural gas as the "contrarian's commodity." While popular commodities like crude oil, gold, and copper have surged off their 2009 lows, natural gas is barely off yearly lows. But as you can see from a "big trend" point of view, those lows are serving as a hard floor for oil's clean cousin...
 
For much of the past decade, natural gas has traded between $6 and $8 per thousand cubic feet (MCF)... with occasional super spikes to $13 per MCF. This was the level reached in mid-2008. New drilling technologies brought massive new supplies to the market, however, and gas suffered a huge decline to $3 per MCF.
 
But note how many times in the past two years sellers have tried to push natty down below $3.50. Those pushes have been met with buying power... like they have been in the past two months. You see, it isn't economical for most producers to pump gas if prices are in the low-$3 range. And while we're not predicting a big bull market for this fuel anytime soon, we can say the bottom is in for natural gas. Contrarians, trade accordingly...

The bottom holds again for natural gas

In The Daily Crux



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