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Cobalt Shares Plunged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Cobalt International Energy (NYSE: CIE  ) sank 10% Tuesday after the oil explorer said it would sell 47 million shares of its common stock.

So what: Cobalt's shares have rocketed recently on positive results at its Cameia-1 Angola well, so it's no surprise that management is pouncing on the stock's run-up to raise some capital. Given the significant size of the offering, however, investors have good reason to be concerned about its likely dilutive effects.  

Now what: I'd continue to remain on the sidelines. Even with today's double-digit pullback, Cobalt's high-beta shares are still up more than 200% over just the past three months. While Cobalt's prospects in Angola are certainly tantalizing, the stock's still-speculative nature makes it an easy pass for conservative investors.

Interested in more info on Cobalt? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

Read/Post Comments (2) | Recommend This Article (0)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 21, 2012, at 1:39 PM, manicmidas wrote:

    You may be right to worry about the large amount of shares, I do think dilution is a problem. Of the 47 million shares offered, only 15.7 million are new shares - the rest comes from existing shareholders. They are getting some money out from hteir original inestment. You might be wary about this event, but I do not think this offering is that dilutive, speculative, yes, but not dilutive.....

  • Report this Comment On February 21, 2012, at 8:06 PM, cralster11 wrote:

    15.7m offered against almost 387m outstanding makes less than a 5% dilution perhaps slightly more with over-allotment. WIth stock up as much as it is and additional good news on drilling today the way it is down today is a typical over reaction of a market that rects to headlines and fails to look closely at hat is behind.

    Sure it is still a risky play but nobody ever said it is a stock aimed at value investors...

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