Oil and natural gas company Nexen Inc.'s (NYSE: NXY) has not progressed as much as expected when first recommended on July 26, 2009 at a price of $20.76, but given the company's business model and oil market conditions, investors should look on the NXY's relatively low price as an extended opportunity to accumulate shares, hence I'm reiterating my Buy rating.Nexen, an independent, Canada-based global energy company, explores, develops and produces crude oil, natural gas, and related products in the U.K. North Sea, U.S. Gulf of Mexico, Western Canada, Yemen, Colombia, offshore West Africa and Norway.
True, Nexen has above-average debt on its balance sheet, but the key factor is the price of oil: oil prices must remain above $45-50 per barrel to enable Nexen's Athabasca oil sands production to remain profitable. With oil trading around $80 and likely to average more than $60 in 2010, Nexen will have the price it needs to increase production at its unconventional oil fields. The First Call FY2009/FY2010 EPS estimates for NXY are $1.20 to $2.79.
Technically, there is the risk that Nexen's stock chart has formed a double-top at or near $26, but a longer-term analysis shows a stock that's taken a breather. Nexen's shares more than doubled in less than four short months, from about $12 to $26, and the summer's dip to about $19 probably was short-term institutional investors (IIs) taking profits. Nexen's price has since recovered to trade at about $22.
Stock Analysis: Nexen Inc. is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in NXY now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your NXY position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $8.50.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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