If the post-crisis years tell us anything at all, it’s that we’re probably better off in the markets than out of them. Despite all the risks and headwinds, it’s paid to stay invested.
I suspect 2013 will be much the same. The economy might be a bit of a wreck, but with the authorities now comfortable in the role of ‘accommodative easer’, it might trundle on for another year. So it doesn’t make a lot of sense to be too cautious.
And anyway – where should the cautious go? US dollars, government bonds, cash? None of these look particularly safe or appealing.
If 2013 is to take on the same sideways movement as 2011 and 2012, it’s likely to be another year for the stock-pickers. Though a FTSE 100 tracker offers a yield of about 3% (after fees), stock picking could give you an awful lot more.
Recently, I announced my favourite stock tip for 2013: HRT Participacoes. It had an awful 2012, but by my reckoning, 2013 looks likely to be a much happier year. In fact, there are four things I’m hoping for in 2013...
Four New Year drivers for the share price
Having flirted with the $10 level in 2011, HRT has by now lost some 90% of its value. Trading at just over $1, HRT looks hopelessly oversold to me – and that’s why I’ve recommended it.
Much of the price collapse over the last year or so comes down to fears that HRT will run out of cash before it finds oil. Oil exploration is an expensive business. And to lay off risk, HRT needs to ‘farm-out’ some of its projects to the oil industry big boys.
HRT has two major drill programmes. The first is in Brazil’s Amazon basin; the second is off the Namibian coast. The company has already got a fantastic partner (BP TNK) in Brazil, and recently announced that it’s working with Portuguese oil company GALP in a limited number of its Namibian fields.
My hope is for a major deal to farm out more of its Namibian assets early in the new year. Any news would surely put the stock on a sounder financial footing. The idea is that the big oil partner farming-in will carry the majority of the exploration costs in return for their share of the venture. After all, HRT has already spent an awful lot of money on the exploration rights and in collecting the preparatory seismic data and evaluating it.
Even if HRT has to carry the full costs of its African drills alone, it’ll have enough money to see it well into 2014. But a sizeable farm-in could add years to its cash position. I suspect good news will cut the current risk-discount considerably.
An exclusive report from The Right Side
The second driver for the stock relates to the significant gas discoveries HRT made last year in the Amazon. As things stand, there’s little they can do with the massive gas fields found in the heart of the Amazonian jungle. It will need some considerable investment in infrastructure to make use of the gas.
A team led by Blair Sanderson (former TNK-BP) is currently working with government and Petrobras (Brazil’s national oil co) on how to push things forward. News about their findings should be published in early 2013 – and a credible plan will undoubtedly bring some cheer to shareholders. Again, it’s all to do with establishing cash-flow that will make HRT a long-term proposition. Moving from explorer, to oil company.
The next two drivers for the stock relate to HRT’s 2013 drill programme.
Though it's found loads of gas in the Amazon, the Holy Grail will be striking oil. That’s what the market wants to see. Oil is much easier to transport than gas and it could start to bring home the bacon almost immediately. And management feel they’re getting closer. The latest drill (HRT-10) is close to finishing. We could still get some good news this side of the new year.
An oil find will certainly make my 2012! But more likely it’ll be the drills scheduled for 2013 that could provide the breakthrough.
But the big event that would really send these shares into orbit will be what (if anything) it discovers in Africa. HRT is targeting 25.5 billion (yes, that's billion!) barrels off the shore of Namibia. Though this is speculative, the company has done as much as it can by way of preparatory work in establishing its drill sites. A recent presentation (you can download it here) suggests that each of the three drills scheduled for early 2013 has around a 25% chance of success.
Come spring, the first results will start to come in. Given the current share price, I would say that bad news is already priced in. Good news, on the other hand, could set the stock alight.
After a pretty torrid 2012, HRT has saved up any good news for 2013. Here’s looking forward with excitement!
• This article is taken from the free investment email The Right side. Sign up to The Right Side here.
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