The October Surprise is…

Written by GSCR Staff   
Friday, 17 October 2014 06:54

The Kansas City Royals, the epitome of a small market MLB team, have made the World Series for the first time in 29 years.

Clearly this vindicates MLB model as it relates to the only league in major American sports without a salary cap. Not really if you are paying attention. The Royals have steadily been building a winner the old fashioned way through the farm system for a while.

 

The Ebola scare has officially hit the U.S. The incompetence of the CDC and the current administration has been on full display, which should be no surprise to anyone but cool-aid drinkers at this point. This crisis is no laughing matter and we hope a serious spread of the disease can be contained. We mentioned some of the Ebola stocks in the Goldman Guide a few weeks back which included Tekmira (NASDAQ—TKMR), Lakeland (NASDAQ—LAKE) and Chimerix (NASDAQ—CMRX). As long as this crisis remains in the news cycle, these stocks will remain in play.

 

The stock market turmoil also should be no surprise to anyone either. The QE party had to end sometime. A return to some basic fundamentals may be in order.

 

The real October surprise is the drop in oil prices given the fact that the overall economy, particularly in the U.S., looks like it is gradually improving. The time may be right to climb onto an oil play in some capacity. Vertex Energy Inc (NASDAQ – VTNR - $5.39) is a unique play on black gold and petroleum. The Company provides a variety of services in the recycling and reclamation of oil and gas with many commercial and industrial customers.

 

The stock has all the earmarks we typically look for, including metrics indicating an undervalued price from a forward P/E and 5-year PEG perspective. The Company announced an increase in revenue of 105% in 2Q14 compared to 2Q13 when it reported 2Q14 financial results, and is projected by analysts to almost double the annual figure from 2013 to 2014 to nearly $300 million.

 

As energy competition increases and oil gets squeezed, stocks like VTNR should offer a cheap way to get into oil from the side door. The $7.00 price level is definitely a possibility by 1Q15.

 

Have a great day!

 

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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