Punters and Speculators: Check This Stock Out

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Here’s a point we’ll keep hammering home here at Profit Watch: There are always opportunities in the market.

It doesn’t matter if there’s a trade war or low GDP growth or dodgy mortgage brokers going about their business.

This week is a perfect example.

Shareholders in cannabis play Creso Pharma [ASX:CPH] aren’t complaining about any of the above.

That’s because the stock was up over 30% in the first hour of trading this morning, after the company announced a takeover deal.

There’s no doubt cannabis is a hot sector right now. But there are stocks that can rise against even a dud backdrop in their own industry.

Today’s Profit Watch shows you how you can start catching some of these moves…

Today I’m going to go over oil and gas stock Carnarvon Petroleum Limited [ASX:CVN].

CVN has four exploration permits off the coast of Western Australia.

Last June, CVN announced the results of its Dorado-1 exploration well, where it discovered hydrocarbons.

CVN’s share price rocketed 48.57% after the Dorado-1 strike last year.

The good news didn’t end there…

CVN announced the discovery of additional oil on 8 August 2018.

CVN even suggested that the quality of the reservoir was better than its pre-drill estimates.

As you can guess, shares flew up again.

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The stock rose 36.1% early on this time, before settling lower by the end of the trading day.

Here’s the deal: CVN’s share price rose a whopping 277% between the June 2018 and August 2018 announcements.  

Yes, that’s a 277% increase in just two months.

That didn’t stop investors from making a buck later, either…

Two hits in the space of a year

CVN began drilling another well called Dorado-2 on 3 May 2019.

Yesterday, CVN announced that its test results successfully confirmed the company’s pre-drill expectations.

Shares rocketed up 13.9% as a result.

CVN’s joint venture partner Santos [ASX:STO], which owns 80%, said: ‘This is a great result which indicates the Dorado discovery is larger than anticipated.

What is interesting about this last rally for CVN is that it has occurred while the broader crude oil price has been moving down.

The current trade war fears have rattled investors worldwide. They’ve sold out of oil and US stocks and sought shelter in bonds and cash.

But it gets back to my point above. Good research can take you to profitable opportunities all the time.

Let’s take a look at a chart of Carnarvon to see this…

Source: Optuma

Look at the left side of the chart. It shows the price action from mid-2018. As you can see, the price of CVN went through a lull before the company announced its Dorado-1 discovery.

It was off to the races shortly after the good news came out!  

You can also see that the price settled down and went in a broad sideways move for 2019.

Now, here’s the thing…

Some research into the company could have told you that it was going to drill its second target (Dorado-2). This is not something oil companies can do without a great deal of preparations (and expense) and telling their shareholders.

All year, you could have taken a position in the stock…and taken an educated chance that the drill would be successful.

Granted, it’s a risk. It’s possible that Carnarvon hit nothing or the results came in below the company’s previous estimate.

That’s the chance you take with a stock like this.

But take a look at the right side of the chart. That’s the price action from the last few days.

That’s a fast payoff for anyone who has bought the stock recently.

Again, this happened while crude oil has been battered.

Take note of how Carnarvon’s stock price did not sell off over April and May.

Can you see the implication? Traders were prepared to hold the stock despite crude oil going down. They were positioning for the potential payoff from Carnarvon’s drilling campaign.  

This is one way you can make very fast gains in the market.

It’s risky. It’s not for everybody. No one is suggesting you invest your life savings in something like this. But a little speculation when the odds are good? That’s okay in my book.  

This is not a recommendation to buy CVN. The upside on this stock is priced in for the moment.

But if you’d like a shot at a similar setup, go here now.

And remember, there’s always moves like this happening.

Until next time,

Jim Rickards Signature

Jonathan Evans,
Analyst, Profit Watch

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