Oil Penny Stocks - Grease Up Your Portfolio

Well, it’s a couple of days after Turkey Day, my wife has cooked all manner of bountiful goods that I am still partaking of, and for some reason I have oil penny stocks on my mind. What is the appeal of oil penny stocks right now? There’s actually quite a bit of sound reasoning to be in the energy markets in general right now, especially in light of the overall “big picture”. Let’s face it, folks…the earth’s population has just passed the 7 billion mark, and I’m fairly certain that the demand for energy to operate all of our modern conveniences isn’t going to go anywhere but up. China and India both have populations over 1 billion apiece, many of which are now entering into a more industrialized way of life. There’s an emerging middle class in China that can now afford cars and other conveniences that require oil. I never realized how many of our modern conveniences require oil for their production—plastic goods are a prime example. The decreasing rate at which we are able to extract oil from the ground and make it fit for productive use is also declining. It seems as though the appetite for oil by industrialized nations is only getting larger and larger. I know there are some people who believe that we’re all going to be living on solar and wind power within 10 years, but that’s simply not going to happen. There’s no authentic political will to make the switch and get serious about investing real serious money into those alternative energies, at least not here in the U.S. So there’s quite a case for oil right now, and in my mind, finding decent-quality oil penny stocks is not a bad idea. I know that this sounds like a huge “fundamental” tilt to my reasoning, but again, I just believe in having your eyes open to the very obvious fundamental factors of a general sector when they’re staring you in the face, and then focus on the technical picture when actually picking particular stocks within that sector. I mentioned this basic philosophy earlier when I talked about gold penny stocks; there are certain fundamental factors that are very hard to ignore, and make a very convincing case, that I consider before entering into a sector. But once I get down to the nitty-gritty of picking the actual stocks, it’s all about the price charts, baby.

So I did want to mention some of the oil penny stocks I’m currently looking at. Not recommending, not promoting, not making predictions about, just looking at. I have learned many lessons through doing this blog, one of the main ones being that I shouldn’t be too quick to say what I “recommend”—I’ve been humbled quite a bit with some of the “predictions” I’ve made. While I have what I believe to be a very good track record with finding out what to look for in penny stocks, I have had some very public disgraces as well. I learned a couple of major lessons from my mistakes—(1) Always wait until the stock breaks out before you buy, and (2) Leave OTCBB stocks alone for the most part, because the majority of them are horribly illiquid. This has been a pretty big shift from my earlier investing style, and while I made some pretty good returns back in my OTCBB days, they were hard to come by, and many times too much of a headache to deal with as far as the liquidity issue is concerned. Nowadays I only mess with stocks on the AMEX, NASDAQ, and NYSE. I’ve even opened up a little more to stocks that are over $5.00 per share, but under $10.00 per share. The leverage is always more acute when you deal with stocks under a dollar, but great gains can be found with stocks over five bucks as well. One thing that sucks (and has happened to me before) is when I pick a stock trading for about 30 cents per share or what have you, and then the doggone thing gets delisted. Next thing you know, it goes into “no man’s land” and basically falls apart. Again, another reason why I’m leaving OTCBB stocks alone for the most part. It is true that a stock can fall apart no matter what the price (Enron, anyone?), but most of the time the fall is more gradual with the more “reputable” stocks.

But anyway, I came across this stock while doing a screener in my TDAmeritrade account for Oil & Gas stocks—it’s a company called Evolution Petroleum Corp (AMEX:EPM), and as soon as I saw the stock’s price chart, the usual bells went off in my mind. The stock is trading within a very obvious range of between $6.00 and $8.00 per share. EPM has had about one full year of very solid price action within this $2.00 range, which in my mind bodes well for its future prospects of a potential breakout. As of this writing, the last price traded was $7.16, and in my mind there’s a lot of positive price action with this stock. It’s definitely flying under the radar right now, which is just what I want to see. I believe that on a convincing breakout above $8.50 per share (with a CLOSING PRICE above that level as well), you may see a steady rise in EPM that could bring some substantial returns over a medium-term time frame. One thing that was very noteworthy to me was the fact that there has only been one close above $8.00 in the past year, and that was back on 2/28/11. So if we see a convincing punch above, I’ll say, $8.50 (and I’m truly just eyeballing it), with a close also above that level on decent volume, we may just be breaking out of that range trade that EPM has been in for this whole year. Volume in this penny stock has also been steady and quiet, which is a good sign as well. Here’s the chart for those of you who are curious:

That’s going to do it for me right now…I hope that this post about oil penny stocks will at least get your gears turning (no pun intended). Happy Thanksgiving/Christmas season to everyone!