Buy Cobalt Energy (CIE)

Cobalt International Energy, Inc. operates as an oil and gas exploration and production company primarily in the deepwater U.S. Gulf of Mexico. The company holds interests in the North Platte, Shenandoah, Anchor, and Heidelberg fields located in the U.S. Gulf of Mexico; and the Diaba block located offshore Gabon. As of December 31, 2015, it had net proved undeveloped reserves of 5.6 million barrels (MMBbls) of oil; 0.3 MMBbls of natural gas liquids; and 1.8 billion cubic feet of natural gas. The company was founded in 2005 and is based in Houston, Texas.

The proposed border tax coming from the new administration may be a boon to U.S. oil producers like Cobalt. With overseas petroleum products carrying a premium, demand for cheaper local oil becomes pressured. Moreover, the construction of Keystone and the Dakota access pipelines will help small producers like Cobalt compete with larger operations. The price of oil is already in rally mode on cuts in overseas production and is beginning to impact Cobatl's bottom line. Shares of Cobalt trade at a low 0.5 Price to Book, and 1.2x cash. The company was upgraded in August last year from Hold to Buy. Consensus price target is $2.70, or 128% above today's price. All analysts rate Cobalt a Buy or Better.

Technically, shares of Cobalt have been trading in a bullish low-level base around $1.00 to $1.40 per share. Volume and momentum analysis suggest that this base is likely to break to the upside within a month or so. There is resistance at $1.50 or about 30% higher than current price. If oil continues to rally we should see that level give way.

Posted to Dr. Stoxx Options Letter on Jan 24, 2017 — 4:01 PM
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