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This Stock Is a Two-Bagger

Dan Dzombak
March 21, 2011

This past summer, the BP (NYSE: BP  ) disaster brought down the entire oil and gas sector. Hurt worst were drillers in the Gulf of Mexico such as ATP Oil & Gas (Nasdaq: ATPG  ) and Callon Petroleum (NYSE: CPE  ) . While Callon's stock has risen more than 35% since early June, ATP's stock has been on a tear, increasing from about $9 per share to more than $18 today -- a two-bagger in nine months. While past performance is not indicative of future results, I believe ATP Oil & Gas is still a two-bagger from here.

100% return
Finding the two-baggers of tomorrow means looking where others aren't -- steering clear of some of the most popular stocks, and focusing on the future, rather than the past. The sweet spot for finding two-baggers is among small-cap stocks. These are underfollowed by analysts and investors alike, making them the perfect hunting ground. ATP fits the bill -- the company is only followed by five analysts. Compare that to ExxonMobil (NYSE: XOM  ) , which is covered by 20!

Sustainable competitive advantage
Unlike most oil exploration and production companies, ATP does no exploring. It only develops proven areas. This is a lower-risk strategy than E&Ps like Hyperdynamics (AMEX: HDY  ) and China North East Petroleum (AMEX: NEP  ) are taking, since it significantly reduces the risk of drilling and coming up dry. ATP's real competitive advantage is its experience drilling in deepwater. This advantage was recently on display when ATP announced it was acquiring partial ownership of five licenses in Israel's Levantine Basin for a minimal fee in exchange for operating the licenses. Without ATP's proven track record o