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With our fundamental view on the markets, in particular the U.S stock market, being that a decent shakeout is long overdue, our attention in recent weeks has moved to individual alpha plays with a good sprinkling of contrarianism about them. We detail below 3 stocks that we have taken a position in…

Blinkx (BLNX)

This is certainly a controversial one! It seems that certain well known share “tipsters” are insistent on sticking the boot in at BLNX, one Lucien Miers in particular. Last time I went head to head with him was on Quindell at 13p (old money) a few weeks ago whereupon the stock promptly rallied to over 19p in the ensuing days. Jury’s still out on QPP, but what I have learnt is that when bears become emboldened and see a one way ticket in a stock, usually the routing is nearer a nadir than a peak.

Aside from going, once more, head to head with Mr Miers, I feel that the fundamental cash backing of near 20p per share that BLNX enjoys and the company’s cracking cash flow conversion together with the deeply oversold status of the shares as displayed in the weekly chart below, that the stock is more likely to rise 30% than fall 30% from current levels.

I do not profess to be an expert in on-line video advertising nor am I sure which side of the camp I sit on re the Ben Edelman revelations but, circa 20 years in the markets has honed a trader’s nose and I am happier sitting in the bull camp here than the bear one. I would not be surprised to see these trade in the early 40’s sooner rather than later. I have even greater conviction now that the “Vampire Squid” has cut their price target from 340p (and being a Conviction Buy) to 40p – you cannot make this up! I find those guys (almost) the best contrarian signal around!

Petropavlovsk (POG)

Petropavlovsk is an interesting one… The Russian gold miner, formerly known as Peter Hambro Mining and still headed by said individual, is now, to me, a binary trade. Either the company trades through the next 12-18 months and benefits from a rising gold price that gives it wriggle room in the debt negotiations hanging over the stock or the banks move in and cease the balance equity from embattled shareholders.

We took a position last Friday and were pleasantly surprised to see the announcement put out by the company today re-iterating production guidance and which has gone some way towards soothing nerves, rallying the stock by almost 30% on the day. As we can see from the stock chart below, the shares were about as oversold as any stock I’ve ever seen this morning. The statement in the RNS that the company “would like to speak to bondholders” is what encouraged me further. It sounds like they are looking to buy these bonds back at a good discount to par in an attempt to repair the balance sheet. Recent heavy selling by fund managers Vanguard & Norges Bank has pressed the stock further into the ground.

From a pure trading perspective we see 50-60p in the next few days. Jury’s out on the longer term value but if Hambro pulls the debt rabbit out of the hat and gold rallies back towards its old highs then this could be a fabled ten bagger.

Bowleven (BLVN)

We have held Bowleven for quite some time now and have an average entry level a little higher than the current stock price. In fact,  we took advantage of the recent weakness during the last few days in the shares to top up an existing holding.

I must admit, like many others, to being somewhat perplexed at the markets valuation of the stock – effectively at its pro forma cash value to be received shortly from Lukoil and thus with no value being ascribed for the likely revenues from its remaining 25% Cameroon Etinde fields. It seems that worries over CEO Kevin Hart’s ability to extricate the company from the Strategic Alliance agreement with Petrofac struck in 2012 are the primary reasons for the discount to fundamental value.

Bulls talk of 70-80p as a realistic target if the transaction uncertainties are resolved which include Cameroon’s President Biya approving the transaction (I doubt this will be an issue) and the construction of a fertiliser plant nearby by third parties. Some think a bid by Lukoil for the entire company is a possibility too. In any event, with the company now in a strong position to continue the drilling program at Bomono and the Etinde project all but de-risked for BLVN we are happy to sit on the long side here and can see mid-late 40’s in the short term.

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CLEAR DISCLOSURE: Richard Jennings &/or Titan managed funds are long each of these stocks. This piece should not be taken as an advocation to buy (or sell) these instruments and you should always take independent financial advice in relation to your own personal circumstances.

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