In continuing with our buy low for the bankruptcy bounce series, we are picking Halcón Resources Corporation (HK) as a prime candidate due for an oversold bounce. Last week was very good for two of our recent bankruptcy bounce picks, Bristow Group Inc. (BRS) and Emerge Energy Services LP (EMES), along with Revolution Lighting Technologies, Inc. (RVLT). This proves that if you ease into a position while trying to catch a falling knife, you will very likely be able to eventually reap some big profits. Traders are looking for that next big bankruptcy bounce winner with those three stocks doing so well last week. Two of them - BRS and EMES - are related to the oil and gas industry just like HK. We are up to 864 followers despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. If you like our picks you can follow our blog by clicking the follow button on the top of the left hand panel. You can also follow us on Twitter @StockTradePicks. We have nearly 4,000 followers on Twitter as well.
HK tanked from $1.22 on May 9th to $0.25 last Friday as the company's poor financial state has the investment community thinking that it could file Chapter 11 bankruptcy once again in the near future. However, it seems to have bottomed out as it was actually up 15% on Friday, rising partially in response as a sympathy play to EMES and RVLT. As a leveraged oil company under pressure from its debt covenants, it trades at over a 20x discount to its book value. It has a $40 million market cap but $1.8 billion in assets and $853 million in total shareholder's equity. The thought process being that if it has to liquidate some or all of its assets in a fire sale either to get back in line with debt covenants by deleveraging or through a forced liquidation, it won't get anywhere near full book value for them. However, with that kind of cushion, traders who are playing for a bounce on HK do have a realistic chance of seeing a good return if management is prudent in selling off assets at favorable prices.
Another reason to bet on a bounce on HK is the high short interest. Total shares outstanding are 162 million with 91 million in the float and 25 million shares short according to Yahoo Finance, making short interest nearly 27.5%. Shorts are in at above $1.00 and likely in well above $2.00 or even $5.00. Where HK is priced now, shorts are so far in the money that it doesn't make a big difference to them whether they cover at $0.25 or $0.50. So we are expecting a short squeeze, just like what happened on EMES and RVLT last week.
Disclosure: We are long HK
HK tanked from $1.22 on May 9th to $0.25 last Friday as the company's poor financial state has the investment community thinking that it could file Chapter 11 bankruptcy once again in the near future. However, it seems to have bottomed out as it was actually up 15% on Friday, rising partially in response as a sympathy play to EMES and RVLT. As a leveraged oil company under pressure from its debt covenants, it trades at over a 20x discount to its book value. It has a $40 million market cap but $1.8 billion in assets and $853 million in total shareholder's equity. The thought process being that if it has to liquidate some or all of its assets in a fire sale either to get back in line with debt covenants by deleveraging or through a forced liquidation, it won't get anywhere near full book value for them. However, with that kind of cushion, traders who are playing for a bounce on HK do have a realistic chance of seeing a good return if management is prudent in selling off assets at favorable prices.
Another reason to bet on a bounce on HK is the high short interest. Total shares outstanding are 162 million with 91 million in the float and 25 million shares short according to Yahoo Finance, making short interest nearly 27.5%. Shorts are in at above $1.00 and likely in well above $2.00 or even $5.00. Where HK is priced now, shorts are so far in the money that it doesn't make a big difference to them whether they cover at $0.25 or $0.50. So we are expecting a short squeeze, just like what happened on EMES and RVLT last week.
Disclosure: We are long HK
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