Friday, July 25, 2008

How One Investor Found a Home Run Stock, Part II

Littlefish's explanation of how he found out about Mexco Energy (Amex: MXC) continues below:

I've been writing this piece meal over the last 2 1/2 hrs of work as time permits so it may be disjointe das hell so sorry for that.
but anyhow, I then saw MXC had been in a heavy downturn for awhile (2-3 years) and had recently purchased their largest nat gas production interest. Volume was anemic and the sellers had been washed strongly out (kinda like GV now but GV needs to get clsoer to a turnaround in---dare I say it--- the Fla condo market).

Yet the stock hadn't responded so then I looked over reserves and production and saw that both those had also started increasing. Then I went digging around trying to find out about their drillings and what areas they were working on, where their acreage was, etc. A couple drillings were taking awhile so I called the CFO and asked for clarification as to what kinds of things might be delaying those coming online. I also wanted to find out what I could about the new purchases since they were a bit of mystery. I came to find out the CFO didn't know specifics either on the wells so I tired to find out on my own. I got production for one of the supposed 3 wells. But it had been in production for over a year and ahd a fairly steep decline curve (so I wouldn't be too excited owning MXC after another Q report or two since the other wells may decline too but also found otu it is a pool of wells and not the original 3 wells announced last I heard- they never did clarify that).

I had no idea about the other 2 wells and their potential until a PR came out about the flow rates in a PR. When that hit I bought even more (some of which I had recently sold because it had popped)...

OK enough LOL. I'm boring everyone in AYSI land.

But in retrospect it was nice to see that last Q rpeort to verify my thinking that they could probably set alltime records for earnings and revs (they did for both). What surprised me was the lack of interest in the company all along until suddenyl it went crazy.

Then specualtion took over, record earnings, the microcap energy sector went ape crazy, low float, it got added to the Russell, etc... And I only own 200 shares now LOL. It was a bigger chunk of my port than AYSI for a little while there.

It was total luck to get that return in that timeframe obviously. But seeing earnings confirm my thinking makes me feel better regardless of share price.
Plus the CEO is a bit of tightwad IMO and owns over 50% of the company (ahem, not that any other CEO out there would be that way- although for the record AYSI's website kicks azz compared to what used to be MXC's so MXC won the worst website award from me so I gave MXC a slightly higher point value score on web ugliness in my evaluation- although MXC redid their website recently so now it is all pretty and bling).

MXC and AYSI are the only 2 companies I've ever owned/controlled where my position was 1% of the company or more. But they are also the only 2 companies I can think of that have fiscally tight leaders that own over 50% of the company and bright prospects in their biz segments and are microcaps with near (or at) zero dilution.

That's my elongated, disjointed, semi-accurate recount (I think) of what I think is the general idea of how I went about refinding MXC.

Littlefish added an addendum to this which I'll post in Part III.

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