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Big Potential in Small-Cap Oil Stocks

Stocks in this article: BA MDLZ XOM CVX RDS.B OXY

NEW YORK ( TheStreet) -- At the recent "Invest For Kids" conference in Chicago, a lineup of stellar speakers from the world of finance such as Leon Cooperman and Sam Zell touted many blue chips.

Among the well-known favorites mentioned were Boeing (BA), Hitachi and Mondelez International (MDLZ). That is why when a Forbes 400 hedge fund manager such as Mark Lasry spoke of Connacher Oil and Gas, a small cap, as one of his favorites, investors should take notice.

Lasry is the billionaire CEO and co-founder of Avenue Capital Group. With over $11 billion in assets, Avenue Capital Group focuses on special situations and distressed debt around the world. Avenue Capital Group is where Chelsea Clinton worked as an analyst.

As detailed in another article on TheStreet, small-cap oil stocks have much more potential upside than do big oil companies such as Exxon Mobil (XOM) and Chevron (CVX). Even with the recent purchase of Exxon Mobil stock by Warren Buffett, it is still one of the worst performing stocks on the Dow Jones Industrial Average. But that is not so for many small-cap oil and gas stocks with great potential such as Connacher Oil and Gas, Octagon 88 and Americas Petrogas.

While Exxon Mobil will likely finish up on the year as a "Dog of the Dow," the performance of small-cap oil stocks has been much better. Octagon 88, now just under $7 a share, was around $5 in early August. Americas Petrogas is near $1.50 after being around 95 cents in mid-September.

Octagon 88 has surged on positive reports about its holdings in Canada. Americas Petrogas has risen on strong earnings, increased production and the hiring of an investment bank for a strategic review to enhance shareholder value. Lasry likes Connacher Oil and Gas because the company has one billion barrels in proven reserves.

It is hardly a surprise that a Canadian small-cap oil and gas company was found to be so appealing.

The North American energy sector is the most attractive in the world. It is unmatched for its political stability and security. Royal Dutch Shell (RDS.B) and Occidental Petroleum (OXY) are selling off assets in the Middle East and North Africa. Repsol, the Spanish oil giant, is looking to spend up to $10 billion to acquire energy assets in North America.


As reported in a recent article in National Geographic, "Outside of the United States, there's neither the legal environment nor the oil services industry capacity to make shale oil and gas development worth the costs. More than 6,000 wells were drilled for unconventional oil in the United States and Canada in 2012, and only 100 outside of North America."

As for Connacher, it warrants attention. As a Forbes 400 member, Lasry has obviously done very well investing in special situations; his remarks on Connacher shouldn't be overlooked by investors looking for what could be a small-cap bargain.

At the time of publication, the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Jonathan Yates is a financial writer who has had thousands of articles appear in periodicals and Web sites such as TheStreet, Newsweek, The Washington Post and many others. He has degrees from Harvard University, Georgetown University Law Center and The Johns Hopkins University.

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