An Ideal Buy on the Dip Microcap Candidate

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BDCO_LogoThere’s no doubt microcap stocks can be prone to volatility and exaggerated moves in either direction, up or down. And when that stock comes from a sector known for its high beta nature, whether it’s energy or mining, those big moves can be even more amplified…and that’s when you buy on the dip.

These are the types of stocks that make trading microcaps so much fun, but more importantly, these are the ideal  candidates to…

Buy on the Dip

Buying on a dip is arguably the best way to approach Blue Dolphin Energy Co. (Nasdaq: BDCO). Texas-based Blue Dolphin Energy sports a price tag that isn’t often seen in the world of microcaps, a universe that’s usually home to stocks trading under $5, if not $1. Following a few days of big volume increases, Blue Dolphin Energy traded over $10. For that reason alone it might be hard for some folks to believe this is a micro-cap stock. But with a market cap of less than $20 million, Blue Dolphin Energy is firmly entrenched in micro-cap territory…for now at least.

Not a fly-by-night penny stock

Blue Dolphin Energy isn’t just an exploration and production company, though that is part of its business model. The company also engages in the provision of pipeline transportation and related services for producers/shippers. Blue Dolphin Energy holds leasehold interests in oil and gas properties located in the U.S. Gulf of Mexico and the North Sumatra Basin in offshore Indonesia. And this isn’t some fly-by-night penny stock. Blue Dolphin Energy has been in business since 1986!

Those are the basics, but traders will love the volatility in this stock and most of that volatility has been coming on the upside lately.

A double, double move

In October, shares of Blue Dolphin were flirting with $2. By year-end 2012, that price had jumped over $4, an impressive surge higher to be sure; but as we said earlier, the stock recently closed over $10. That means it more than doubled again. With a beta of nearly 1.9, any decent move higher by the broader market will be positively exaggerated in Blue Dolphin shares on the upside.

Someone is clearly trading Blue Dolphin shares because on Friday February 17th when the stock gained almost 19%, it did so on volume that was roughly 12 times the daily average. That was the sixth time in 2012 that Blue Dolphin has been among the Nasdaq leaders in daily percentage or volume increases.

Following that…on March 6th, BDCO lost 13% to close at $8.25.

Indeed, there are risks to consider beyond the volatility. Blue Dolphin was once delisted from the Nasdaq. The company reported a loss in the second quarter of 2011. On the bright side, when the company reported that loss, its revenue did increase significantly and the company is reportedly looking to sell of its pipeline assets in an effort to better fund its exploration and production efforts.

Noteworthy is the fact that Blue Dolphin recently sold $300 million in corporate debt and that issue was rated A1 by Moody’s Investors Service. That’s an investment grade rating and most companies as small as Blue Dolphin do NOT have investment grade ratings.

The wild card for Blue Dolphin is Indonesia. The North Sumatra Basin-Langsa Field has immense potential, particularly for a company the size of Blue Dolphin.

Like we said…

Consider getting involved on pullbacks, like the recent one as that’s probably the prudent way to play this name.

Posted by Dr. Micro