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Buy, Sell or Hold: Brigham Exploration Co. (Nasdaq: BEXP) is in the Midst of a Blue-Sky Breakout

By , Money Morning •

Brigham Exploration Co. (Nasdaq: BEXP) - the oil and gas exploration company that we recommended as a "Buy" on Jan. 24 - has moved up by 27% in the last few weeks.

And it's not done yet.

Brigham shot as high as $32.98 on Friday after closing Jan. 24 at $25.33. In the past week alone, the stock is up nearly 11%.

Indeed, this has turned into a blue-sky break out - a phenomenon that occurs when there are high expectations for long-term organic growth.

It's possible that the sharp move up in Brigham's share price will lead to a correction, but when it is a blue-sky break out, the run could last a while.

So let's take any money we have left on the sidelines and look at any smaller, short-term dips as opportunities to increase our stake in Brigham.

Here's why.

Buying into Brigham

Brighamis an oil and gas exploration company that's focused on the Bakken Formation of the Williston Basin in the Montana and North Dakota area of the United States.

Brigham has a great focus on increasing its own proprietary knowledge. It also has built up a nice land package that gives the company the ability to develop an inventory of future proven drilling reserves.

But what's more impressive is that the company's production from source rock in the Bakken Formation is changing the way oil companies look at their portfolio of properties.

Brigham originally was focused on drilling natural gas wells, but now it is using the technology it developed while doing so to complete oil wells. As a result, Brigham has helped turn around the overall oil production curve of the United States.

Historically, the United States has had a shrinking domestic supply of crude oil. But with the development of shale fields, the country has started to regrow its annual domestic production, and decrease its independence from foreign oil firms.

Brigham currently has no net debt, which means it can scale up its operations once it hits a sweet spot in the development of its acreage.

Each developed well gives four offsetting drilling locations that are considered "proven but undeveloped" (PUD). The company has been drilling its property so that each new well helps it open up more PUDs.

The current strategy will allow Brigham to build up a bountiful inventory of locations.

Action to Take: "Buy" Brigham Exploration. (NYSE: BEXP).

In my Jan. 24 article, I suggested investors deploy only 50% of their intended capital on this investment. The idea at the time was that the Brigham stock would experience a 10% - 20% pullback, giving patient investors a chance to lower their overall entry into the stock.

Obviously this has not happened, as the stock is up about 27% since I made my initial recommendation. Simply put: Brigham has moved up too much, and too quickly, for us to expect to get those fills.

So let's cancel those out of the money limit orders, and look to move them up in price.

Sometimes the truly good companies take off and never look back. Brigham is looking like it might be one of those investments.

[Editor's Note: "Buy, Sell or Hold" columnist Jack Barnes started his career at Franklin Templeton in 1997, working in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries. He launched his own RIA shop in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008. Barnes - the author of the popular blog, "Confessions of a Macro Contrarian" - retired to the beach in the summer of 2009, and continues to write from there now.]

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