Forest Oil Corp (FST)

I normally like to buy things at a much larger discount than it is currently selling, but this company has a very strong future for a variety of reasons and will not get any cheaper any time soon. Its partner in the recently announced enormous Shale gas discovery has even better stock potential, as discussed below (JUNEX, ticker JNX on the Toronto Stock Exchange). Consequently Junex's stock has been increasing VERY rapidly since yesterday.

1) A day ago, Forest announced a major discovery for 4Tcf of Utica shale gas resource in the Quebec Appalachian basin (St Lawrence Lowland area). This is equivalent to 40% of the Forest's existing resource base!! It is a large under-explored and low cost future growth area, with minimal competition (thus Forest build large land holdings at low cost over the last 2 years; including by farming in on some of Junex's land).

NOTE: Junex is a smaller company that is Forest's partner in the play. Junex leads the Quebec Utica Shale gas play area as Junex has been acquiring a dominant position over the last decade (6 million acres). Junex has almost 3 times the land base and thus 3 times more resource potential than Forest (i.e. 12 Tcf). Unlike Forest, Junex is selling at a deep discount to its shale gas land holding value (i.e. the potential for a multi-Billion dollar market cap that is currently priced at $60MM). The stock price is currently $1.3/share and should be at least $12/share based on how the market priced Forest's portion of the discovery. However Junex's stock has been going up VERY rapidly this past day. My Google post for the stock ticker JNX describes the valuation in depth.

2) Forest has sold off non-core assets like GOM and Alaska. Thus it is very focused on its resource plays.

3) It is a very good acquirer and has bought assets cheaply while subsequently adding enormous value through development.

4) It is a low cost producer and is in top quartile (in fact, despite widespread cost inflation its peers have had, it has kept drilling costs flat; which is an amazing feat).

5) Great metrics:
a) ROIC consistently 7% last 5 years
b) TEV/EBITDA is 8, which is average despite Forest having above avg performance
c) P/E at 24 is acceptable given its growth prospects.
d) NI and EBITDA margins 15% and 70%, respectively, for more than the last 6 years.
e) EPS growth 45%/yr CAGR over the last 5 years
f) debt/cap consistent with peer average at 40%
g) Revenue growth was 32%, EBITDA was 40%

Forest also has a very thorough corporate presentation on their website.