Nexen: A relatively undiscovered gem

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.