2 Outperform Microcaps

Much has been written about the possible disconnect between the oil futures market and the longer-term impact of the Iranian conflict. Inventory replenishment, output, shipping, refining, and the practicality of de-mining the Strait of Hormuz arguably are not being adequately factored in.

The argument that oil prices will fall commensurately should a deal be reached seems to miscalculate the structural damage that has occurred, making recovery problematic. 

If you fall in the camp that oil prices will be structurally higher for longer, even if an agreement is reached, then SandRidge Energy, Inc. (SD) is worth investigating. 

SandRidge Energy, Inc. (SD) is an independent oil and natural gas company focused on the acquisition, development and production of hydrocarbon resources, primarily within the U.S. Mid-Continent region, namely Oklahoma, Kansas, and Texas.

SandRidge Energy, Inc. (SD) operates at lower cost extraction rates with the majority of wells profitable at WTI prices of $40 and nat gas prices of $2.00 (HH). 

The balance sheet is strong with $112 m in cash and no debt and the stock trades near tangible book value of $14/share. Importantly, the stock price is highly correlated to the price of oil as the graph below depicts.

Image Source: Zacks Investment Research

Aries Technology, Inc. (AERT), is the second microcap stock with a Zacks Outperform rating. Aries Technology, Inc. (AERT) is a technology consultant primarily servicing the Private Equity industry, more specifically the portfolio companies of Private Equity

Image Source: Zacks Investment Research

Aries Technology specializes in the design, set-up, and management of Global Capability Centers (GCCs) across the GCC lifecycle. Its offerings combine strategic advisory, functional operations management, and AI-enabled digital transformation services aimed at improving operational efficiency, innovation, and cost optimization.

Importantly, it is both an AI and a wage arbitrage play. It sets up the GCC’s utilizing AI to automate back-office functions while also coordinating labor for tasks that simply can’t be automated, utilizing primarily employees in India and Mexico.

We also believe the recent collaboration announcement between Anthropic, Blackstone, and Goldman Sachs, validates the Aries business model. The newly formed identity will apply AI across mid-sized portfolio companies, thus encouraging more rapid adoption. The collaboration addresses the “significant bottleneck in enterprise AI adoption by expanding the number of skilled implementation partners.”

While it no doubt could represent new competition, the new company more importantly acknowledges the market need for consultant type AI expertise.
 

 

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This article originally published on Zacks Investment Research (zacks.com).

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