When I shed USANA Health Sciences, Inc. (NYSE:USNA) from my hypothetical portfolio yesterday, I wasn't necessary in a hurry to replace it with a different pick. But, that doesn't mean I wouldn't fill in the slot that USNA left behind with another idea if the right opportunity came along. Well, the right opportunity came along. I'm adding Denbury Resources Inc. (NYSE:DNR) to my position list, at the same 5% allocation that USANA Health Sciences had.
Even if you don't think you're familiar with DNR, you may be more familiar with it than you think. Denbury Resources is an independent oil gas name that - to be honest - doesn't look all that different from its peers. There is one key distinguishing factor here, however, that's compelling about this company.... it's consistently profitable, even with the ever-changing price of oil.
That's not to say it's always grows profits. Lower oil prices and tepid demand crimped income in 2009 and 2010, when per-share income fell from 2008's $1.55 to 0.70 in 2009 and $0.62 in 2010. We've also seen something of a profit lull in recent quarters, as the price of crude up until a few months ago had been suppressed. Either way, with oil prices on the rise and not looking like they're going to budge anytime soon, the prior earnings estimates may not do the company or shares of DNR justice. The pros still have quarterly profits slated to fall in the latter half of this year, as well as next year. I don't see it happening, with oil prices on the rise but demand not really falling off.
With all of that being said, the biggest reason of all I'm so willing to replace USANA Health Sciences, Inc. just a day after I shed the nutritional supplement company is based on the healthy shape of the Denbury Resources chart. It's coming out of not only a long-term slump, but a long-term wedge shape that's allowed bullishness to brew for a couple of years. It could take at least several months to unleash all that pent-up bullishness. The proverbial coming-out party is the way DNR has pushed its way above the falling resistance line, but has pushed up and off of two different rising support lines (all red) since January.
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But the stock's at risk of another oil meltdown? Maybe, but I don't think so.
Truth be told, DNR shares probably shouldn't have raced all the way to $40 in mid-2008; that was pure speculation. Likewise, the pullback to less than $6.00 later in the same year was also overbaked. I've got a feeling the market's not going to inflict the same kind of volatility-driven pain in itself again. Now, the chart says traders know how the oil game is played, and they're trading it in a more predictable manner. There's still a horizontal ceiling at $20.00 that needs to be broken, but I don't think it'll be an issue given the momentum that's been brewing for a while.
Although I don't consider Denbury Resources Inc.a Buffett-esque 'forever' stock, this isn't a short-term idea either. I'm planning on holding it at least for several weeks, and I'd like for that holding period to turn into months as long as progress is being made.
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