4-Star Stocks Poised to Pop: China North East Petroleum

By Brian D. Pacampara | More Articles
January 21, 2011 | Comments (7)

Based on the aggregated intelligence of 170,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, Chinese oil producer China North East Petroleum (AMEX: NEP ) has earned a respected four-star ranking.

With that in mind, let's take a closer look at China North East's business and see what CAPS investors are saying about the stock right now.

China North East facts

Headquarters (Founded)	Song Yuan City, China (1999)
Market Cap	$172.9 million
Industry	Oil and gas exploration and production
Trailing-12-Month Revenue	$106.6 million
Management	Acting CFO Shaohui Chen VP Production/Operations Li Guo Yu
Return on Capital (Average, Past 3 Years)	30.9%
Cash/Debt	$50.5 million / $2.75 million
Competitors	Ivanhoe Energy (Nasdaq: IVAN ) Ultra Petroleum (NYSE: UPL )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 97% of the 542 members who have rated China North East believe the stock will outperform the S&P 500 going forward. These bulls include All-Stars tdomalley and mrindependent, both of whom are ranked in the top 2% of our community.

Just last month, tdomalley tapped China North East as a bargain opportunity:

Small cap oil company that has had its stock price beaten down by questionable accounting tactics. Appears to have straightened that out, so am willing to take a chance now based on nation's huge appetite for fuel. Still a long-term play.

China North East is down roughly 40% over the past year, but with an exclusive 20-year lease on its largest producing oilfield from PetroChina (NYSE: PTR ) and a deal in which all of its oil is sold to the energy giant, many Fools think it's just too cheap to ignore. Currently, China North East trades at a price-to-cash flow multiple of 5.4, which is a discount to competitor Ultra Petroleum (9.3), as well as gorilla oil plays like ExxonMobil (NYSE: XOM ) (8.5) and Chevron (NYSE: CVX ) (6.2).

CAPS All-Star mrindependent elaborates on the bull case:

This stock is still reeling from the restatement of its 2008 financial results, which occurred several months ago. I think the financials are basically in line and this company appears to be positioned for massive success as a favored driller for Petrochina. Simple business model, focused management. Will be a multi-bagger unless fraud runs deep. I am putting real money on this.

What do you think about China North East, or any other stock for that matter? If you want to retire rich, you need to put together the best portfolio you can. Owning exceptional stocks is a surefire way to secure your financial future, and on Motley Fool CAPS, thousands of investors are working every day to find them. CAPS is 100% free, so get started!

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Chevron is a Motley Fool Income Investor selection. The Fool owns shares of Ultra Petroleum and ExxonMobil. 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 (7) | Recommend This Article (14)

Comments from our Foolish Readers

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 icon found on every comment.

Report this Comment On January 21, 2011, at 12:44 PM, rru2s wrote:

The deal announced yesterday, acquisition of an oilfield in Inner Mongolia, is expected to at least TRIPLE oil production within 12-18 months. The new field has been shown to be more productive, and their drilling subsidiary is located in Inner Mongolia. This will eventually turn NEP from a 6 dollar stock to a 15 dollar stock.
Report this Comment On January 21, 2011, at 6:07 PM, Glycomix wrote:

NEP's numbers look good, but is someone cooking the books?
To quote from Matt Koppenheffer: three days ago (Jan 18, 2011)
"Chinese companies that have come to the U.S. markets through reverse mergers. This is a quick-and-dirty way to get a U.S. listing that usually involves a company with little-or-no business operations merging with a small company in China. Some of the most popular Chinese small-caps have come to the market this way -- including China North East Petroleum Holdings (NYSE: NEP),"
"Meanwhile, a well-known auditor is more likely than a small, unknown shop to make sure the books are 100% in order. Big auditors do make mistakes, but the scandals in Chinese small caps so far have mostly been over companies with no-name auditors."
http://www.fool.com/investing/international/2011/01/18/chasi...
Where can you find reliable information?
Report this Comment On January 21, 2011, at 8:16 PM, Isellusmell wrote:

I believe their auditor is now Ernest and Young.
Report this Comment On January 22, 2011, at 8:34 PM, willlburrr wrote:

http://www.fixyou.co.uk/tracker_auditors.php
Report this Comment On January 23, 2011, at 2:35 PM, rru2s wrote:

According to NEP's most recent 10Q, filed 11/19/10 for the period ended 09/30/10:
"We have engaged Ernst & Young (China ) Advisory Ltd. to assist us to comply with the requirements of Section 404 of the Sarbanes-
Oxley Act Section of 2002. As part of compliance with SOX 404, our management and our external auditor will examine and report on the adequacy of our internal financial reporting and control systems after documenting and testing financial reporting and control procedures. In addition, Ernst & Young will provide recommendations to our management for instituting necessary additional controls to enhance the risk management capability of the our internal controls over financial reporting."
Report this Comment On January 25, 2011, at 1:51 AM, Madcapped wrote:

E&Y is not the auditor. The excerpted portion of NEP's 10-Q describes a more limited engagement than a full audit.
Report this Comment On January 25, 2011, at 1:21 PM, batteredup wrote:

Did you say 4-star stocks ready to poop?

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