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A pumpjack sucks oil out of the ground in a serene setting near Longview, Alberta (JEFF MCINTOSH/GLOBE AND MAIL)
A pumpjack sucks oil out of the ground in a serene setting near Longview, Alberta (JEFF MCINTOSH/GLOBE AND MAIL)

Schizas' Mailbag

Legacy Oil+Gas Inc. has generated a legacy of losses Add to ...

Hey Lou,

Listen to you every morning on Talk Radio AM640! I wonder if you could run another analysis on Legacy Oil and Gas Inc.

It appears to be pretty beaten up. Do you think now would be a good time to start a position in this company?

Thanks,

Michael

Hey Michael,

This will be the fourth time that I have focused my attention on Legacy Oil + Gas Inc. (LEG-T) since February of 2011. The last time was on March 9, 2012 for Nasko. The shares were trading for $10.97 and it was advised that LEG was probably not suited for a conservative investor and that traders might be most capable of taking advantage of any opportunities.

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A thorough examination of the charts will help you decide whether now is a good time to get on this ride.

The three-year chart says it all. LEG has been in a sell off for most of the last 18 months giving up ground from the March 2011 high of $17.00. It did get a lift in late 2011 that ran until February of 2012 when it met resistance at $13.00.

The shares are currently trying to build support near $5.00 but there isn’t much of ledge for it to hold onto.

The six-month chart provides a textbook example of a stock that is struggling with a devastating downtrend that has generated significant losses for buy and hold investors.

The breach of support along the 200-day moving average in mid March of 2012 signalled that the bounce it enjoyed earlier in the month was at an end. Efforts to move higher over the last three months have all met resistance along the downtrend line. The answer to your question from where I sit is no.

Now is not a time to be chasing LEG. It has been struggling with resistance along a downtrend line. There is a death cross that surfaced in late April which is not trivial and the price of oil has been soft to say the least. The best time to buy a stock is when it is going up.

LEG has caused major problems for investors who stuck with it and it has also caused a lot of headaches for investment managers who have been holding it in their portfolios. Clearly most of the problems are macro issues in the sector as opposed to execution problems in their field operations. But that isn’t much comfort when you have given up a substantial portion of your invested capital.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lschizas@globeandmail.com.

 

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