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ATP Oil & Gas (ATPG) should be on your radar screen. The market cap is now $115 million, with a current P/E of 1.3 and a forward P/E of 4. What I like most about ATP is the excellent management team, who along with employees own over 20% of the shares. ATP operates almost all its proved properties, which means the company has complete control on capital expenditures. The company operates exclusively in the Gulf of Mexico and the North Sea via a hub-type concept, meaning that all of its oil platforms are clustered together. Such an operating model is advantageous because it gives the company greater efficiency over its operations

ATP acquires properties no longer desirable by the exploratory firms and develops them. The success rate has been astonishing, and in 2008 the company replaced more than 200% of its production. At the height of the oil boom, shares overshot to $50 a share; today they have undershot to $3 a share. Even though the company has $1.3 billion in debt, most of it is due years from now, and the company has done a brilliant job of monetizing assets, including a recent $150 million partnership with a unit of General Electric (GE - Get Report). Such deals reduced debt by more than $300 million in 2008. With great assets and great management team that eats their own cooking, this company knows how to make money, and more important, how to weather the storm.

Another small-cap, zinc producer Horsehead Holding (ZINC - Get Report) is cheap by all standards of value. The company has a net cash position of more than $120 million against a market cap of $138 million. Like all things commodity-related, it's priced as if there will never again be demand for its products. But zinc is an essential component of tires, plastics, paints and pharmaceutical products.

In addition, the company is the largest recycler of electric arc furnace dust. EAF dust is a hazardous byproduct of mini-mill steel operators such as Nucor (NUE - Get Report); recycling EAF dust eliminates costly landfill use by steel operators. With steel production sharply down, there is less dust and thus less to recycle for Horsehead. But at the current price, you are getting the business for almost free, with facilities that are worth almost a billion dollars to replicate even in today's depressed market.

One way to get back what we've all lost in this market is to exploit the best opportunities today that will reward the patient investor with triple-digit returns. It likely won't happen in six months, but with so much cash sitting on the sidelines, it won't take much to propel the prices of the names above. Anything goes in this market, and prices could continue to decline, so I would use the market declines to slowly build any position.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider ATP Oil & Gas and Horsehead Holdings to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

This was originally published on RealMoney on March 10, 2009. For more information about subscribing to RealMoney, please click here.

At the time of publication, Gad was long ATPG and ZINC, although positions may change at any time.

Sham Gad is the managing partner of Gad Capital Management, a value-focused investment firm based in Athens, Ga. Gad has written extensively for The Motley Fool and was a securities analyst for UAS Asset Management, a small, value investment fund in New York City, in 2007. Previously, Gad managed assets for the Gad Investment Group.

Gad runs a value-investing blog inspired by the teachings of Benjamin Graham. Additionally, he is currently working on a value investing book to be published by John Wiley & Sons in the fall of 2009. Gad earned his BBA and MBA at the University of Georgia. Gad appreciates you rfeedback; click here to send him an email.
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ZINC $0.20 82.73%
GE $30.89 0.46%
NUE $50.30 1.04%
TSO $81.03 1.68%
VLO $59.82 1.61%


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