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Small Stocks, Big Gains in the Oil Patch

Chernoff, who owns the stock, concedes that the company's operating costs can be high. But he says that operating margins "skyrocket" when oil prices surge.

Indeed, Encore this July reported "record" second-quarter results as it ramped up production and collected higher prices for its fuel. Two days later, Credit Suisse First Boston analyst Phillip Pace began recommending the stock.

"The theme we are trying to position for is the increasing value of probable resources in a higher price environment," Pace explained. "The net result of this is visible growth with good returns into the next decade."

Encore's stock climbed 30 cents to $33.60 on Friday and is up nearly 50% in a year.

Still, Chernoff insists that many investors tend to overlook Encore because the company will never announce a big find like those that score sexy headlines. Instead, he says, Encore quietly pumps more and more oil at increasingly high margins.

"They do it over and over again. ... But what they're doing," he adds, "I don't think too many people are noticing."
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