Stockprowler.com

Stockprowler’s pick this week...

LPOAZ – Jan 04 2.50 call options on Mirant Corp. (NYSE: MIR) http://quote.cboe.com/QuoteTable.asp?TICKER=mir&ALL=1

Readers please take note… This report is the last of the current Stockprowler series. Our next series of reports is scheduled to begin Sunday, July 6, 2003.

This week we are taking a very different path… Stockprowler is of the opinion that shares of our last pick, Mirant Corporation (NYSE:MIR) are drastically oversold and ready to make a dramatic move over the next few months. We have looked at the Jan 04 2.50 call options on Mirant Corp. (option symbol LPOAZ) that closed Friday at $.40 ask, and $.30 bid and we are absolutely convinced that they are a huge opportunity offering a speculator incredible potential leverage. We believe shares of MIR could reach last summer’s trading level of $8 or higher in the coming months. With that as a very real possibility, in our opinion, and for reasons which we will outline later in this report, let’s do a hypothetical comparison between buying Mirant long term call options and investing an equal dollar amount in shares of Mirant common stock. If an investor were to buy 100 contracts of Jan 04 2.50 call options on Mirant at $.40 current ask, the 100 contracts would cost $4000, not including commissions. The 100 contracts would give an investor the right to buy 10,000 shares of Mirant common stock (NYSE: MIR) at $2.50 anytime up until the expiration date on January 17, 2004, regardless of how high the price of shares may rise. Let’s assume Stockprowler’s crystal ball prediction of $8/ share becomes a reality during the life of the call option…The 100 contracts Jan 04 2.50 calls on Mirant would be worth a minimum of $55,000 and possibly even more depending on the time remaining until the expiration of the call options. That’s a whopping return on investment of 1275%. Compare that to investing the same $4000 in shares of Mirant common stock (NYSE: MIR) which closed Friday at $1.46. Your $4000 would buy you 2,740 shares of common. Again, let’s assume shares of MIR hit $8 in the coming months. Your $4000 investment would be worth $21,920 or a return of 448%. Now, of course, there is downside risk in either case, and in the case of the call options there is the real possibility that they could expire worthless on January 17, 2004.

So, why do we think that rolling the dice on the Mirant call options is worth taking a very real risk to make some incredibly serious money? Here are 10 reasons why:
1) Warren Buffet finds value in the utility sector - Billionaire investor Warren Buffett, who emerged as an unlikely buyer of utilities just two years ago, stands ready to inject massive amounts of money into his MEHC (MidAmerican Energy Holdings Corp.) for the purpose of acquiring more assets in the utility sector. Buffet’s MidAmerican already owns $18 billion of assets and in 2002 it reported more earnings than any other Berkshire Hathaway business outside its insurance business.
2) Mirant Corp. (NYSE: MIR) http://www.mirant.com/ is a global energy company with an extensive portfolio of power and natural gas assets. Mirant tops MSN MoneyCentral’s SuperModel list of low-priced, beaten-down, worst-performing and most heavily shorted stocks in the S & P 500 Index. Mirant (MIR) has lost nearly 84% of its market cap in the past 12 months. MIR has $2.28 billion in cash and a very attractive Price/Sales ratio.
3) Mirant made an excellent move when they hired Blackstone Group to assist them in restructuring their debts. With natural gas prices soaring, and looking good in the long term, calling in Blackstone looks to us like a very smart move. These people are pros and know how to play hardball with the banks. If Blackstone is successful in obtaining a refinancing package the stock price should quickly rise to $4 - $5, the level of comparable companies in the IPP sector. Also, rising MIR 2004 bond prices may suggest that refinancing out to 2004 is assured. Looks to us like those in a position to know are seeing the “handwriting on the wall” that indicates to them a combined refinancing for 2003 and 2004 is in the works and includes redemption of the bonds… may even be that Mirant is buying the bonds.
4) Mirant CEO Marce Fuller stated in November that the company “is not going bankrupt”. This position has been reaffirmed in recent weeks by company spokesman, James Peters in the press… and most recently this past week by Carey Skinner, Mirant IR. Mirant has enough cash flow to get through 2003, and the company hasn't sold any more assets this year… Stockprowler interprets that to mean that CEO Fuller has confidence Blackstone will get a attractive refinancing package together. If there were a real threat of bankruptcy, Mirant would have been selling assets to avoid BK. Our guess…a refinancing deal is likely to be announced in April.
5) CNBC ran a story Wednesday that the “energy glut” is not quite the glut that everybody thinks. Wall Street big boy, Jimmy Rogers said, according to CNBC, that there is likely to be an energy shortage as early as next year. CNBC hosts, Kudlow and Cramer agreed that natural gas is already in short supply and electricity could soon follow.
6) Neil Cavuto’s Fox network show made mention of MIR directly… one analyst rated the stock a buy, and thought it could see a 50% or more pop in the next few weeks!
7) Technically, from a chartist’s point of view there appears to be a double bottom in place this past week with the sell-off that occurred in the $1.13 - $1.15 an indicator for a potential prolonged upside move.
8) The 13 analysts covering Mirant are reporting 2003 estimates which average $0.77 EPS and with a range of $0.50 to $1.40 EPS. Even at the lowest number, Mirant is an excellent investment opportunity. Shares of Mirant will likely rise dramatically with the rising price of power due to higher natural gas prices. In February, the Mirant East Power Index was up on the order of $20 over the 4th quarter. As coal-fired plant contracts are renewed this will likely translate into hugely significant profits for Mirant.
9) California Governor Gray Davis’ allegations of energy price gouging by Mirant, and many other IPPs, is laughable. Read Mirant’s response to these “tabloid allegations” by a politically failed governor… http://biz.yahoo.com/prnews/030304/attu017_1.html
10) This is truly a value play… here we have a stock trading at a P/E of close to 1! Richard Lehman, editor of Forbes/Lehman Income Securities Investor and the Defaulted Bonds Newsletter thinks some of the best turnarounds of 2003 will be in the energy sector. Lehmann says that once power providers get past the shadow of the California electricity crisis of 2000 and the Enron collapse, their fortunes will improve immensely. His top pick… Mirant (NYSE: MIR)

The Stockprowler prediction is $8 -$15 in the next 6 – 12 months… Just our opinion. Stockprowler does not receive compensation from companies we profile or from third parties… we never have and never will. We use our own money when we buy stocks, and even though we usually take a position in a stock before we profile a company, our purchases are always relatively small so that the chance of having an effect on a stock’s price when we buy or sell is negligible. Please read our full disclaimer. Also, contrary to a commonly held belief, Stockprowler does not have access to insider information, nor do we want to, because trading on insider information is illegal! All information contained in our reports is available in the public record… and any written or verbal communication with company CEOs/ IR people strictly adheres to this rule. Readers are urged to read the company SEC filings and do their own due diligence before investing in this or any other stock.

Good Trading... Stockprowler