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Slow makeover in store for this ugly stock

A Niko Resources oil well suffers a blowout in Bangladesh, June 2005.

NIKO RESOURCES

Hi Lou,

Unfortunately I bought this stock when it was trading in the $50 range. It now sits in the $6-to $7-range. I have been holding on to it in hopes there will be a turnaround.

As you can see I have taken quite a loss and was wondering if you see any light at the end of the tunnel.

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Thanks for your insight.

Kevin

Hey Kevin,

I share your pain! Nothing hurts like finding new lows with your money. The key lesson here is that you need to establish an investment policy that includes preserving capital when you have taken a hit on your investments. There is no law that says you have to ride the bomb to ground zero like Slim Pickens in "Dr. Strangelove".

This will be the third time that I examine the case for Niko Resources Ltd. The last time was on Dec. 14, 2011. Daniel wanted to know if investors could expect continued selling pressure. The shares were trading at $43.50 and grappling with a relentless downtrend. The research conducted on Daniel's behalf identified that the shares had to catch a bounce off of $40.00 to set the stage for a trend reversal. It was advised that the best way to manage this stock would be to trade it for profits.

A review of the charts will provide evidence that you can use in making your decision on how best to manage this investment.

The three-year chart is one breathtakingly ugly portrait of pain and suffering. The company has failed to meet analyst's expectations for the last eight quarters which provides some of the back story to explain at least some of the selling. Make note of the resistance that has come in along the 200-day moving average as the stock advanced on news of a discovery offshore India in late May of 2013.

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The six-month chart depicts the advance that started as the stock moved off its 52-week low of $5.13 in late March. The spike high in May on the drilling results reported from India has generated a healthy profit of nearly 50 per cent in less than a week. The next test for this stock is moving through the 200-day moving average.

In the case presented and the subsequent analysis there is little to suggest that you will be seeing a quick return to the $50.00 range. Best case scenario in the near term is a continuation of the advance to recover more of your losses.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lschizas@globeandmail.com.

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About the Author
Lou Schizas

Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality - and a true believer in the happiness-inspiring powers of capitalism. More

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