Tuesday

China, Commodities, Jim Rogers, The Inflationist Challenge 2009, TheInflationist StockPicks

The Inflationist buys Cooper Energy

We picked up $6500 worth of Cooper Energy (COE) at 0.26c as it continues to trade close to cash backing. Its record levels of oil production, high cash backing, recent success at Callowanga, opportunistic takeover attempt of Incremental (which seem like a good investment per se long term) gives us plenty of reasons to take a bite. Previously, we calculated cash backing after liability to be approximately 0.20c per share after the failed takeover attempt of Incremental Petroleum (including newly issued shares). However, with continued drilling success and positive cash-flow, we feel that Cooper presents an opportunity in the long term with limited downside, and will not be surprised if its cash backing would have gone up since then. We are wary of the fact that most companies including Cooper have bounced off its lows (52 week low 0.20c) and as much as we hate being impatient and to “chase”, we feel that there has been positive developments that have transpired since the low in October to justify the 6c premium. Crude oil is starting to show signs of a turnaround, although it is way too early to make a call. The fact that Merrill Lynch issued a target price for Crude Oil at $25 USD per barrel is reassuring, as history have shown that whenever these “experts” make such predictions, they are seldom right (so, we set the floor of oil at around recent lows of $35 USD per barrel). Only a few months ago they issued a target of $200 USD per barrel (perhaps someone added an extra zero by mistake). We are tempted to buy more, but there are just so many bargains out there trading BELOW cash at the moment. If it pulls back, we will gladly double our holding.

We also picked up some Giralia at 34c - which fell the moment our trade went through to 32c (We have that sort of ultra short term effect on share prices). It has 73 mil AUD in the bank and 4 mil in equity of various listed commodity explorers - most of which in our opinion will never see the day of light) and has a market capitalization of 59 mil AUD - another Buffett stock in our opinion. We will write more on it next week.

We are also looking closely at China Milk Product Group, a Chinese company listed on the Singapore Exchange highlighted in our recent article. It closed at 41c yesterday, up 8% since we spotted it. Milk revenue only forms 25% in 2008, with 75% from sales of bull semen, whilst its share price have taken the full brunt of the melamine scandal. It also has a net positive cash backing even after deducting all liabilities. We hope for it to fall sub-40c so that we can get onboard.

Disclaimer: The author holds shares in Cooper Energy.

Our Portfolio:

If you have an informed opinion on investing that you want to share with The Inflationist community, we welcome you to register as an author. The best way to contribute to The Inflationist is to sign up for “The Inflationist Challenge 2009″ and to manage your own virtual portfolio. That way, your portfolio performance speaks for the quality of your articles (price action is all we care about really). The Inflationist strives to provide objective, transparent stock recommendations leveraging on public investing talent.