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NEW YORK (
TheStreet) -- Canaccord Genuity analysts say
Comstock Resources(CRK - Get Report) and
Penn Virginia(PVA - Get Report) are two small-cap names that have garnered negative market perceptions, but are actually good stocks to buy.
Both companies are late gas-to-oil transition stories that began shifting towards the Eagle Ford oil shale development only this year. Therefore, investors view them unfavorably, perceiving them still as natural gas companies in an environment of bearishly low gas prices.
Furthermore, Penn Virginia's poor execution of projects outside the Eagle Ford shale has also hurt the stock.
Still, the analysts insist that "after the recent
20% underperformance to the group, we believe both stocks offer at least 30 percentage points of incremental upside relative to the sector ... looking ahead, continued operational execution and additional leasing in high-quality areas of the Eagle Ford should drive outperformance."
The Canaccord Genuity analysts point out that both small-cap transition companies have been working to increase their Eagle Ford leasehold positions.
Comstock for instance has 25,000 net acres in the play, with plans to grow their leasehold to 30,000 net acres, while Penn Virginia has 14,000 net acres in possession, with plans to expand to 25,000.
Canaccord Genuity analysis indicates that both companies have the bank revolver capacity to execute these acquisitions and their 2012 capital plans.
"Achieving targeted Eagle Ford leasehold positions should provide sufficient resource scale and legitimate franchise positions to the market."
-- Written by Andrea Tse in New York.
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