Wednesday, November 3, 2010

Gasco (GSX) Natural Gas Penny Stock

With the Natural Gas Industry exploding in the US and the quest for energy independence; a penny stock natural gas company could be a great investment to benefit from this growing industry. I found a small penny stock company with over 100 natural gas wells that is already profitable.

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Gasco Energy Inc. (GSX)
Recent price: 0.36
52 week range: 0.25-0.62
Market cap 38.71M
Gasco Energy is an Oil and natural gas exploration company, mainly operating in the Rocky Mountain region. The company operates 130 gross wells as of October 2010.

After production reached an all time high in Q2 of 2008 Gasco slowed production until it bottomed out in Q1 2010. Production in Q2 of this year showed vast improvements from Q1 and then increased 9% for the most recent Q3. Sales increased 32% for Q3 year over year due to increased production and higher natural gas prices.

I think Gasco could be positioned to benefit greatly from higher natural gas prices and stronger demand as the US slowly climbs out of the recession. Their revenue has been very volatile which is expected from any company operating in the natural gas industry due to price volatility. Don't get discouraged if production slows down, natural gas exploration companies tend to cap drilling when gas prices slip. Because of their extremely low market cap if managed well Gasco could see some strong  growth in the near future.

Gasco's Performance Vs. Natural Gas Prices
 (This graph depicts a three year period of UNG a natural gas ETF Vs. GSX. As you can see GSX has mirrored UNG through the period.)
(For this year to date graph we see GSX recovering as UNG pushes down probably due to a better than expected Q3 earnings.)

Future Outlook
The problem right now with the natural gas industry is supply and demand. There is excess supply due to recent discoveries of natural gas in the US and improved drilling techniques. Supply remains low as the world economic recovery is flat. Until the US begins to find more ways to use natural gas and transitions to natural gas, supply will more than likely be greater than demand. Companies can still operate profitably in low demand situations but I would feel a lot better about this company if I could see higher natural gas prices in the near future. Because of Gasco's small market cap and recent profitability I believe they will weather the storm and see strong growth through the next few years with the recovery of natural gas prices.

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