Two Small Bakken Stocks for 2014

 | Dec 06, 2013 | 1:00 PM EST
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Some smaller exploration and production stocks have provided some of the best performers within my portfolio in 2013. The Bakken-focused energy producers have been extremely kind to me in 2013. Holdings like Triangle Petroleum (TPLM) and Abraxas Petroleum (AXAS) have roughly doubled over the last year.

As we start to put 2013 behind us and approach 2014, I am looking for similar opportunities in this region for the New Year. Here are two small cap Bakken energy concerns I think could provide significant returns in 2014.

Emerald Oil (EOX) is a small independent exploration and production concern. The company's main production comes from the over 65,000 net acres it has in the Bakken shale region. The stock has performed well in 2013 but not nearly to the extent as some of the other exploration and production concerns in my portfolio.

In addition, the company has a history of not performing to expectations. However, there is plenty to like about Emerald especially as a possible lucrative but speculative play in the Bakken. This view was echoed by Jim Cramer in late October.

First, it is getting over 90% of its production from oil. Its acreage is also being assigned a much lesser value by the market than other larger Bakken players like Oasis Petroleum (OAS) and Kodiak Oil & Gas (KOG).

Most importantly, production of oil should double in 2014. This should allow the company to turn a profit in the coming fiscal year. After doing a capital raise and selling some non-core assets earlier this year the company is well funded and will not have to come back to the markets to fund its aggressive drilling program.

The company's last quarterly report in early November easily beat top-and bottom- line expectations. I believe Emerald could be a big winner in 2014 as it substantially grows production and/or possibly draws the attention of a larger player interested in its undervalued acreage.

Northern Oil and Gas (NOG) is another slightly larger independent energy company with crude oil and natural gas properties primarily in the Bakken and Three Forks formations within the Williston Basin in North Dakota and Montana.

Northern is not ramping up its production anywhere near the extent of Emerald, but should post respectable revenue gains in the high teens for both FY2013 & FY2014. The stock has a minuscule five-year projected price-earnings-to-growth (.4).

The company is also solidly profitable and earnings should grow more than 10% this year with additional gains of 10% to 15% in the coming year. The stock goes for less than 12x forward earnings which is less than half of its average over the previous five years.

Northern could easily have been included in my column Thursday around "Growth at a reasonable price". It also could be an attractive target if M&A activity picks up in the Bakken, which was noted Thursday in a piece in Barron's.

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