Stock Research: Macarthur Coal (MCC)

Share Price: $4.00
Shares: 212m
Market cap: $850m

EPS estimates

30-6-09: 150c, P/E 2.7 (Low 107c, High 174c)
30-6-10: 200c, P/E 2 (Low 177c, High 377c)

DPS estimates

30-6-09: 75c, Yield 18.8%
30-6-10: 100c, Yield 25%

Summary

Positive

* Global market leader in supply of seaborne low volatile PCI coal.
* Low cost PCI (steel) coal producer. UBS estimates cost per tonne is $94, MCC says FOB costs are $75 in FY2008 annual report.
http://ar.macarthurcoal.com.au/2008/index.cfm?contentID=13
* Still ramping up post early 2008 floods.
* Strong coal sales
* On steady state profits, very cheap and massive dividend yield.

Negative

* Hard to judge growth profile.
* Negative cash from operations in FY 2008.
* What impact to foreign exchange contracts have on the balance sheet and profits?
* What will happen to coal price? Thermal coal prices benchmark US$125, spot US$100 at 16th Oct 2008.

Company Profile

Macarthur Coal’s principal product is low volatile pulverised coal injection coal (LV PCI) for use in the production of steel.

Macarthur Coal is a major supplier of LV PCI coal to the steel mills of Asia, Europe and Brazil and also produces some thermal and coking coal. (From FP: PCI coal can be utilised in the steel-making process in blast furnaces, making it a cheaper alternative for those steel producers looking for a cheaper alternative to more expensive coking coal)

Macarthur Coal’s major assets are a 73.3% share in Coppabella Mine and Moorvale Mine through the Coppabella & Moorvale Joint Venture (CMJV) (which together provide approximately one third of the total volume of LV PCI coal exported from Australia) and a 74.66% share of the Middlemount Mine project.

Macarthur Coal has large prospective exploration tenement holdings which provide a project portfolio for the development of new coal mines.


2009 Goals

Coppabella Mine: 3m tonnes
Moorvale Mine: 1.95m tonnes

Q1 FY09 (announced 16th Oct 2009)
Production 1.1m tonnes, with quarterly production to improve over course of year as Coppabella Mine still recovering from floods.
Demand for coal still striong


Half year profit forecast: $150m - $160m

Payout 50% of NPAT as dividends

2008 Results to 30th June

Revenue $400m
NPAT from operations $55.6m
EPS 36.6c
Div 17c

Cash from operations: negative $36m (positive $30m in 2007)
Cash balance: $22.5m
Loans and borrowings: $48m

Volumes

Coal production: 3.5m tonnes (rain affected year)

Top Sales Destinations & Customers

Europe 36%
Japan 26%
Brazil 17%
Korea 11%

Strong and diverse international customer base maintained which includes most of the world’s top steel producers

Contract executed for supply to Dragon Steel Corporation, a company constructing a new integrated steel plant in Taiwan

A memorandum of understanding signed with Hyundai Steel, a company constructing a new integrated steel plant in the Republic of Korea

Stock Research: Tap Oil (TAP)

Share price: 60 cents
Shares out: 156,487,000
Market cap: $94m
Cash as at 31st Oct 2008: $60m, down from $100m at 31st Dec 2007. No exploration success. Spent $32m in Sept 08 quarter on exploration for no return.

Summary

- Generating ~$40m to $50m cashflow per annum, in steady production state, but production steady to falling.
- Shares are very cheap. Market cap $90m less cash $60m = EV $30m.
- Requires drilling success for major share price catalyst.
- Downside very limited. Upside significant.
- Near term catalyst valuation only and/or uplift in oil price (currently US$60 or A$85 with A$1 = US$0.70) as major exploration prospects don't drill for another 9 -12 months.

Major Exploration Prospects

- Block M onshore Brunei (Tap 39%, Operator). Two appraisal wells called Mawar-1 and Mawar-2) to be drilled in April/May 2009.
- Carnarvon Basin:
* WA-351-P (LNG, Tap 25%). Drill late 2009. Non-operator risk.
* WA-191-P. Fletcher 3 (Tap 10.93%) appraisal well drilled Nov 08.

Full drilling programme on p6.
http://www.asx.com.au/asxpdf/20081031/pdf/31d9t1k4yqnprv.pdf

Why are the shares cheap?

- Falling oil price
- No recent exploration success...does it suggest future exploration will also be disappointing?
- Varanus Island incident on 3rd June 2008 meant production shut down. This is subject to an insurance claim, plus production will be back to normal by end 2008.
- Caught up in the general equity and energy stocks sell off.

Production

Wollybutt (Tap 15%, ENI Operator)

Production stable at 12,000 bopd (1,800 net to Tap)

31st Oct: "Field going into natural production decline in the coming months"
http://www.asx.com.au/asxpdf/20081031/pdf/31d9ygx37w60pv.pdf

Harriet (Tap 12.23%, Apache operator)

Potential production 10,000 bopd (1,223 net to Tap)
Gas 115TJ per day

John Brookes (Tap 100%)

Gas resale, gas bought at 2005 prices.
Generates $25-30m revenue per annum.

Stock Research: Redflex (ASX:RDF)

Redflex Holdings Limited is an Australia-based company engaged in traffic management, road safety, defense, transport, security and communication products. The Company provides red light and speed photo enforcement systems and back office processing services in Australia and US.

Share price: $2.70
Market Cap: $240m
Year end: June 30th

Pros

- Strong market leader
- High operating margins
- Excellent recurring revenue

Cons

- Need to check debt and cashflow
- Stated ROE 15%
- High CAPEX
- NPAT $10.6m -> P/E 22 (trailing)

Current Forecasts

EPS(c) PE Growth
Year Ending 30-06-09 15.2 18.0 33.3%
Year Ending 30-06-10 19.9 13.8 30.9%

Growing fast but need a higher margin of safety...share price ~$2.30

Stock Research: QMASTOR (ASX:QML)

QMASTOR Limited is engaged in the provision of operations, marketing, logistics and commercial software and services for the bulk material industries, particularly mining.

Share price: 34 cents
Market cap: $14m
Year end: 30th June

Pros

- Software group, selling to mining industry.
- 2008 a breakout year
- 2009 revenue forecast to grow 80% to $9m
- Recurring revenue streams via software licenses.

Cons

- Hard to judge their competitive position.
- Cash generation not great.
- 2009 EPS forecast 3.25 to 4 cents, vs 3.05 cents in 2008. Heavy investment in R&D and international investment costs.

Stock Research: ASG Group (ASX:ASZ)

ASG Group Limited (ASG) is a provider of information technology (IT) services to the users of mid range computers for enterprise systems delivery. The Company provides solutions to address clients business requirements in the areas of infrastructure and applications management outsourcing, Oracle e-Business suite implementation and support, applications development, business intelligence solutions, systems integration, IT service management and specialist technical services.

Pros

- Strong recurring revenue
- Decent competitive advantage
- Many government contracts
- Operating margins ~14%

Cons

- Facing economic headwinds
- Capitalises software development costs
- Poor operating cashflow
- Impossible to raise operating margins materially as ASG are a management consultancy company.

Valuation

- Share price as at 26th Aug 2008: 90 cents, market cap $116m
- Forward P/E: ~9

Bottom Line

- A GARP share, with no obvious share price catalyst
- Would like to see an improvement in cashflow
- Would like an even larger margin of safety with the share price

Company Watchlist

DQ Entertainment (LSE: DQE) - Manek Growth
Animation and game art content production company

Rensburg Sheppards (LSE: RBG)
Fund manager with good performance

RWS Holdings (LSE: RWS) - Liontrust
A group engaged in the provision of intellectual property support services to the pharmaceutical chemical medical telecoms aerospace defense and automotive
industries.

Ora Capital Partners (LSE: ORA) - Blackrock UK Smaller Companies

The growth and development of businesses in which ORA has or acquires either a significant minority or a majority shareholding. ORA's holding generally results from participation in the formation of new businesses or from acquisitions.

Stock Research: Incremental Petroleum (IPM)

Strategy: Acquire low risk oil and gas assets and apply technical expertise to develop the assets and their productivity.

Main asset: Selmo oil field in Turkey. 500 million barrels in place with 83 million barrels produced to date. Expected to generate around $20m cashflow per annum for next 2-3 years.

Shares out: 79m
Recent Share Price (24th July 2008): $1.05
Market cap: $83m
Dividends -> 6 cents in past 12 months.
Net cash balance at 30th June 2008 -> $9.5m
Financial year ends 31st December

2007

Revenue $40m
NPAT $10.7m
EPS 16 cents
P/E 6.6


Q2 2008 (to June 30) report
http://www.asx.com.au/asxpdf/20080724/pdf/31b9sq4wyjkr68.pdf

Q2 2008 Q1 2008

Net Production (BBL) 113k 116k
Ave Daily Prodn (BBL) 1,247 1,295
Ave Price (US$) $118 $90
Revenue ($A) $14.0m $11.6m

BJ estimates

Selmo 2008

Ave Daily Prodn (BBL) 1,300
Oil Price $110
Annualised revenue $50m
Net Profit Margin 30%
NPAT $15m
EPS 19 cents
P/E 5.5

Tricom report 30th June 2008
http://www.incrementalpetroleum.com/reports/IPM_EDIRNE_DRILLING_080630.pdf
2009 revenue estimate: $70m (includes Erdine revenue at oil at $120/ BBL - may be optimistic)

Verdict:
2009/10 cashflow ~$30m, equating to a P/cashflow of around 3.
Exploration prospects on top
Little or no debt
Risks
- Lower oil price
- Delays/downgrades to Erdine project
- Exploration disappointments


Erdine Gas Project, West Turkey (IPM 55%)

7 gas discoveries from 7 drilled wells.
Production planned mid 2009
Potential cashflow to IPM of around $10m, based on 9mmcf/d

Exploration, Turkey

8 exploration licenses awarded in May 2008

USA Projects

5 projects totaling 19,000 acres in San Joaquin Basin, central California.

1) Kettleman Middle Dome (IPM 10%)

Operating and producing field. Revenues cover US costs. Royalty of 25% of gross proceeds applies.

Significant production from new wells planned to commence in 2009.

2) Shallow Gas Project (IPM 50% and operator)

Rig slots booked in Q4 2008. If successful, begin production by end 2009.

We Name Two More Small Resource Stocks Today

With the stock market jumping over 3% on Monday alone, suddenly a wave of investor optimism has returned.

Calling All Serious Stock Market Investors…

This is a time to be brave.

It is a time to be bold.

As we said last week, we firmly believe the worst is over, and the market is closer to the bottom than the top.

In fact, following Monday’s 160 point or 3.3% jump in the All Ordinaries Index, we may already have seen the bottom.

But even if we have passed the bottom, that is NOT a reason to sit on the sidelines. After the 3.3% jump on Monday, the All Ordinaries Index was still down a massive 26% from its peak of November last year.

Stocks Are Still Cheap Today

Most stocks that were cheap last Friday are still cheap today.

Take the one small oil stock we named last week, Salinas Energy.

In the week since we highlighted that stock to readers of this email, the share price has jumped from around 33 cents to around 36 cents, a rise of around 9%. In a tough market like this, with the oil price falling, we think you’ll agree that is an impressive move.

Right now, with Salinas shares around 9% higher in just the last week, you may be thinking you’ve missed the boat.

Well we’ve got news for you. If we thought the Salinas Energy share price was only going to rise 9% from the 33 cents it traded at last week, you’d be sadly mistaken.

Although the 9% price hike gives people who bought last week at 33 cents a nice “feel-good” factor, over time we think the one-week 9% rise will pale into insignificance.

What sets us apart from other services is our ability to focus on, amongst other things…

• Recommending companies in sectors and industries we think offer excellent long-term prospects.

• Recommending companies with outstanding management teams and proven track records. Wherever possible, we try to meet with management to get an even better idea of a company’s prospects. We find there’s nothing better than seeing the whites of management’s eyes when recommending a company to the thousands of our paying Members.

• The long-term attractiveness of the stock market and in particular, the stocks we recommend as a BUY to our paying Members.

The last point is an important distinction. We are not interested in timing the market and short-term pops in the share price, such as we’ve seen with Salinas Energy.

There Is A Lot Of Good Value In This Stock Market

We take a long-term perspective when recommending stocks for our Members to buy. In the short-term, share prices go up and down based on supply and demand. One day, when shares are in favour, the share price might rise. The next day, when shares are out of favour, the share price might fall.

Those sorts of movements are just noise. The very best investors are immune to stock market noise.

For example, John Murray of Perennial Value Management was quoted this week in the Australian Financial Review (AFR) as saying…

“One day the market is up and the other day it is down.”

“Our view is that there is a lot of good value in the market.”

“Investors have to try not to be caught up in the day-to-day machinations of the market.”

We couldn’t agree more.

In fact, we go two steps further, by actually naming two of our very favourite resources stocks, both of whom we think have been beaten down too far by this vicious bear market.

Read on for details of those two companies …

One Great Stock Market Day Can Make All the Difference

What a difference a day can make to the mindset of investors. Suddenly, after Monday’s 160 point or 3.3% jump in the All Ordinaries Index, the mood on the street is one of optimism.

We guess it’s not too surprising, given the rise was the 7th largest one-day gain in the S&P/ASX 200 Index since 1992.

Take some of these quotes in Tuesday’s AFR…

“There seems to be a bit more calm in the market.”

“I think you have the set-up for a more sustainable rebound…Previously, there was clear evidence that some people were just giving up.”

Then we had the eagerly awaited results from Bank Of America, which reported quarterly profit that fell less than expected on record revenue. Not surprisingly, the shares bounced in Monday trading in New York.

Credit Crisis Not As Bad As People Thought

Following the Bank Of America results, Reuters quoted Steve Roukis, managing director at Matrix Asset Advisors, as saying “It suggests the credit crisis isn't as bad as people thought. A week ago there was tremendous fear about systematic risk to the system. There's definitely a floor here.”

Again on Reuters, Bank of America Chief executive Kenneth Lewis was quoted as saying on a conference call: “We do not yet see the economy slipping into prolonged recession," but "sluggishness" will likely persist through year-end.

If Lewis is correct, and the US economy is not looking at a prolonged recession, the stock market could be set for a substantial rebound.

Many stocks are priced as if a recession is guaranteed. If we’re talking about a ‘sluggish’ economy in 2008, that in itself could be enough to light a flame under the share prices of some beaten down stocks.

As you’ll see below, we think there are some compelling stock market bargains, two of which we actually name today.

Small Resources Stocks Look Plain Cheap

As regular readers of this email will know, we have consistently been bullish about the resources sector.

In recent weeks, we have become even more bullish about smaller resources stocks. As a group, they have seen their share prices hammered as investors have indiscriminately sold them off.

Our overwhelming view is that, in the resource sector specifically, the small caps are being priced way too pessimistically. We're not sure when they'll begin to benefit from better market sentiment. But we do know that good companies, whether explorers, developers or producers, will eventually be rewarded.

So instead of selling or sitting there doing nothing, instead we think you should be taking the opportunity to add to positions over the next few months to gain even greater benefit from the eventual recovery.

The bottom line is that natural resources stocks have some of the best earnings potential and the lowest valuations in the entire share market.

Our portfolios are chock full of what we consider to be high quality, cheap resources stocks.

We Name Two Cheap Resource Stocks

We named one of our favourite cheap resource stocks above – small oil producer Salinas Energy.

Today we name two other small resource stocks we think are downright cheap. Not surprisingly, both are gold producers.

Why gold? We remain of the opinion that the gold price is headed back above US$1,000 an ounce in the not too distant future, and stand by our year-end prediction of US$1,100 an ounce.

If that prediction comes anywhere near being right, we think these two small gold producers, plus all the other gold stocks in our portfolios, could be set to soar higher.

Cheap Small Resource Stock #1

St Barbara is a West Australian based gold exploration and production company. St Barbara’s current production is coming entirely from their Southern Cross operations. Although they hit their production target for the previous 12 months, in tune with many other miners, higher costs have crimped their profits.

While that’s rightly the area of focus at the moment, there are some good things going on at St Barbara. We think they have huge exploration potential and we think their $35 million annual exploration budget is yielding results.

Having recently raised new money at a share price of 40 cents, St Barbara now has around $110 million in cash. With their recent share price around 27 cents, the company is worth in total around $360 million.

We remain confident on St Barbara’s prospects. A gold price well above US$1,000 will no doubt provide a boost to sentiment, and we anticipate new highs in the gold price later this year.

Cheap Small Resource Stock #2

We have long regarded Avoca Resources as a highly attractive, emerging gold play. In a sector dominated by projects with high-cost operations and flagging profitability, this company is set to be a fresh new face on the block, with strong operating margins.

Avoca has recently confirmed that its brand new $77 million underground gold mine has been commissioned. Amazingly, it is the first new gold operation in Western Australia since 2001.

Avoca’s Higginsville gold project boats a +1 million ounce gold resource base that is continuing to grow in size. Based on the most up-to-date resource estimate announced in late-2007, the Higginsville resource base comprises 1.35 million ounces of gold.

We feel the upside potential remains enormous. Avoca currently controls the gold belt between the 15 million ounce St Ives and six million ounce Norseman goldfields.

We remain overwhelmingly positive on this company’s story. There are very few emerging, high-quality gold producers in the Australian market. With the shares currently trading at around $1.85, Avoca company is currently trading on a price-earnings multiple of around 13 times forecast 2009 consensus earnings.

When Will This Bear Market End?

We think those two gold stocks will do well over the coming weeks, months and years.

In fact, we are very confident in the future prospects of ALL our portfolio stocks. As we’ve said in the past, we view market corrections as an opportunity.

Yet many people remain reluctant to invest in the stock market in the midst of this bear market.

If we knew when this bear market was going to end, we’d be millionaires.

We won’t pretend we are able to accurately predict the future. That said, we are in the business of making educated guesses about the future. So here goes…

By the time you read this, the bear market might already have ended.

If it hasn’t already ended, it might end tomorrow.

It might end this month.

It might end this year.

It might end next year.

It might end sometime after that.

You’re right – we’re sitting on the fence.

You see, bear markets are somewhat difficult to accurately define. We fully know their accepted definition is a fall of 20% or more from their peak.

The Australian stock market peaked in November last year and is now down around 25%, making it officially a bear market.

Here A Bear, There A Bear…

But it’s not a bear market for large resources stocks.

Yet it’s an even bigger bear market for most banks, retailers and smaller companies.

So although this is officially a bear market, it doesn’t mean all stocks are falling, and it doesn’t mean all stocks are falling by the same amount.

As usual with stock market investing, it’s a case of picking the winners and avoiding the losers. That’s exactly what we try to do.

What The Very Best Investors Do In Times Like These

What do you do during these times of periodic stock market wobbles?

We don’t blame you if you sit on the sidelines, waiting out the storm.

But what really sets the best investors apart from the average investors is their ability to calmly and rationally assess the situation, to concentrate on the underlying value of the company and not its falling share price, and to take advantage of the falling share market to buy some more of their favourite shares at even cheaper prices.

That’s exactly what we try to do. We concentrate on finding good quality, cheap companies to recommend to our Members as a BUY.

We wish you happy and profitable long-term investing.

We Name One Cheap Small Oil Stock Today!

There is no hiding from this stock market. It is taking down the good with the bad and the ugly.

But we have some good news…below we actually name one small oil stock we think is downright cheap today.

Dear Fellow Stock Market Investor,

This stock market is ugly.

We are in the business of recommending stock market winners, and at the moment, that is proving pretty damn difficult.

Picking a winner at the moment feels like trying to find a needle in a haystack.

Yet there is hope.

There is more than hope. There is opportunity. In Tuesday’s Australian Financial Review (AFR), Glenn Mumford said…

“Don’t be surprised if a bounce in equities develops as the week unfolds – and it might prove substantial.”

Whichever way you look at them, some stocks are just plain cheap.

Below we name one small oil company we think is incredibly cheap today. They have recently upgraded their calendar 2008 revenue projections by a whopping 25%, yet the share price remains in the doldrums.

Some Compelling Stock Market Bargains

We realise this is a tough time for stock market investors. Share prices are retreating on an almost daily basis. Share portfolios are hurting.

Yet shares look cheap. In fact, many shares look downright cheap. But in this ugly market, in the short-term, just because a stock is cheap doesn’t mean it can’t fall even further.

The good news is that history is on our side…

• Buying good quality assets when they are trading at a significant discount to their fair value is always a recipe for investing success.

• The time to buy cheap assets is at times of maximum pessimism. We may be at or not far off that point right now.

As you’ll see below, we think there are some compelling stock market bargains today.

Resource Stocks Continue To Power Ahead

As we said above, we currently think many stocks are just plain cheap. To emphasise the point, late last week we rushed a special email alert to our thousands of Members.

As regular readers of this email will know, we have consistently been bullish about the resources sector, particularly oil and gold. With the price of oil hitting US$145 a barrel and gold now trading back up at around US$970 an ounce, we think you’ll agree we’ve been largely on the mark with those two calls.

The resources sector has clearly outperformed the broader stock market. In fact, if you have not been exposed to the resources sector over the past few months, you’ll be sitting on some very painful losses.

The strong performance of the resources stocks has been largely confined to the big end of town – Rio Tinto, BHP Billiton and Woodside Petroleum, just to name a few. This is symptomatic of what happens in a bear market, made much worse by a global credit contraction.

In these types of markets, appetite for risk diminishes. With credit contracting, liquidity dries up. Money flows up into the big, liquid stocks at the expense of the smaller, illiquid companies.

When people are hit with margin calls or are paying down debts, they need to sell assets and reduce their risk. Hence, smaller companies, especially small miners or explorers are seen as the riskiest exposures and are therefore sold off.

These Stocks Are Priced Way Too Pessimistically

What we are seeing today is many smaller company resources stocks trading at very low levels. If we were on the brink of a commodity price collapse, such pessimism in the share price would be warranted. But as we've pointed out many times, we do not think that is the case.

If commodity prices fell significantly from here, there would be a huge reduction in supply as many miners would shut down their operations due to them becoming uneconomic. The huge amount of inflation in the mining sector is real, unlike the official inflation statistics we see every month or quarter.

This means the rise in commodity prices is justified and sustainable. In fact, we think prices will move higher in the years to come.

Our overwhelming view is that, in the resource sector specifically, the small caps are being priced way too pessimistically. We're not sure when they'll begin to benefit from better market sentiment. But we do know that good companies, whether explorers, developers or producers, will eventually be rewarded.

So instead of selling or sitting there doing nothing, instead we think you should be taking the opportunity to add to positions over the next few months to gain even greater benefit from the eventual recovery.

The bottom line is that natural resources stocks have some of the best earnings potential and the lowest valuations in the entire share market.

Our portfolios are chock full of what we consider to be high quality, cheap resources stocks.

One Very Cheap Small Oil Company

Take the small oil company we initially recommended to our Members in July last year when it was trading at 57 cents.

The company is called Salinas Energy. Today its share price is around 34 cents.

Here is what we like about Salinas Energy, and why we think it is cheap today…

• We firmly believe triple digit oil prices are here to stay. In fact, we think oil could trade as high as US$200 a barrel in the not too distant future. Oil is a naturally depleting resource, and almost all of the world’s cheap oil has already been discovered. Courtesy of the rapid industrialisation of China and India, home to over 40% of the world’s population, demand for oil is going to keep rising whilst supply keeps diminishing. Whether we like it or not, it all adds up to a rising oil price.

• We have stated that Salinas Energy is one of the oil sector’s biggest bargains for some time now. This is not some speculative fly-by-night oil explorer drilling speculatively for oil in politically sensitive areas of Africa. Salinas is already an oil producer via its North San Ardo field in southern California, an area where oil reserves are potentially significant.

• Salinas have recently increased their forecast revenue for calendar 2008 by 25%, based on record high oil prices and record high oil production. Yet since that announcement at the end of June, and despite the oil price going yet higher, it has had little or no impact on the Salinas Energy share price – in fact, the share price has edged down. There was a time not too long ago when such an announcement would likely have resulted in a significant jump in the share price.

• We estimate their calendar 2008 operating profits at around $15 million, and estimate their calendar 2009 operating profits could jump as high as around $30 million. For a company worth in total just $82 million, including net cash of around $7m and no debt, this looks remarkably cheap.

• But that’s not all. On top of their current oil production, Salinas also holds a 50% stake of the Paris Valley oilfield, just 6 miles from their existing North San Ardo site. This field has potential for more than 100 million barrels of oil-in-place, of which Salinas is hoping to target 25 million barrels of recoverable oil.

In summary, we think Salinas Energy continues to demonstrate all of the necessary ingredients for success. There is a sizeable disconnect between the company’s market worth and its in-ground oil value in our opinion, with no value ascribed for ongoing exploration achievements.

With its share price trading at just 34 cents, we think the upside potential is significant. The company obviously thinks so too, as it is regularly buying back some of its own shares.

Shock Revelation: Recessions Come And Go

We are realistic investors. We realise this current stock market stinks. We realise many people have lost money, and we realise that is painful.

But we also realise…

• Recessions come and go. Because we haven’t had one for such a long time now, we’ve forgotten what they look like, forgotten how long they last, forgotten what happened to share prices before, during and after the recession, and forgotten what it’s like when house prices stagnate or even fall.

• Stock market corrections come and go. Because we have just come from 5 years of double-digit percentage stock market gains, we’ve forgotten that markets can go down as well as up, forgotten that stock market investing entails taking on some level of risk, and forgotten that borrowing money to invest in the market is going to doubly hurt in a falling market.

• Share prices tend to over-react both on the way up and on the way down. In a bull market, shares that look expensive can keep rising, higher than anyone ever thought they could go. In a bear market, shares that look cheap today can keep falling further than anyone ever thought they could go.

We may not be at the bottom of the market yet, but we think we are certainly closer to the bottom than we are the top, and when it comes to smaller resource companies, many of them look just plain cheap.

The Stock Market WILL Bounce

The economy will recover. It always does.

The stock market will bounce back. It always has.

How do we know? We’ve seen it all before…

• In 1997, we had the Asian financial crisis.

• In 1998, we had the Long Term Capital Management collapse and Russia bond crisis.

• In 2001, we had the US terrorist attacks.

• In 2003, the markets plunged heavily amidst a liquidity and forced selling crisis in the insurance and banking systems.

You may hear people saying “it’s different this time”.

They may liken today’s credit crunch with the Great Depression of 1929 to 1939.

They may say it’s the mother of all recessions, with large banks across the world set to go bust.

They may tell you to get out of stocks now, and to stay out of them for the next 5 to 10 years.

What The Very Best Investors Do In Times Like These

What do you do during these times of periodic stock market wobbles?

We don’t blame you if you sit on the sidelines, waiting out the storm.

But what really sets the best investors apart from the average investors is their ability to calmly and rationally assess the situation, to concentrate on the underlying value of the company and not its falling share price, and to take advantage of the falling share market to buy some more of their favourite shares at even cheaper prices.

That’s exactly what we try to do. We concentrate on finding good quality, cheap companies to recommend to our Members as a BUY.

The share prices of some of our specially selected small resource companies are currently looking very cheap.

We wish you happy and profitable long-term investing.

Start The New Financial Year With A Bang

It has been a tough month and a tough 12 months for stock market investors, with the All Ordinaries Index off 15.5% for the year and 10.3% for the month of June.

Yet there is hope…plenty of hope. Oil, gold and other commodity prices continue to trade near record highs, all boding well for our specially selected resource stocks.

Below we review the UPS and DOWNS of the last 12 months and highlight just 2 of the many small resource stocks we are recommending as a BUY today.

Happy New Financial Year Fellow Stock Market Investor,

We start this week with a thought...

On Monday morning this week the Australian stock market opened nearly 50 points higher.

That was despite a fall on Wall Street on Friday of over 100 points. It was also despite widespread predictions of a fall for the Aussie market – for example, a headline on the front page of the Australian Financial Review (AFR) said “Markets on edge as bears roam Wall St”.

True to form, by the end of the day, the All Ordinaries Index had fallen 17 points. But that early morning rise got us thinking…

As has become the norm over the past 6 odd months, resources stocks were higher, not surprising when you consider many commodities are trading at or near record highs.

We find it rather interesting that the market rose in early morning trade, despite all the doom and gloom and generally negative sentiment.

Stock markets are always looking forward, not back.

They are not looking at the oil price of over $US140 a barrel today, instead they are looking at what they might think the oil price is in 3, 6 and 12 month’s time.

They are not looking at interest rates today; they are looking at interest rates in the future.

The Aussie economy is slowing. It will slow further in the months ahead as higher interest rates and higher petrol prices continue to put the bite on working families. That’s why the share prices of many industrial, banking and retailing stocks are trading at or near 52 week lows.

The shares of many companies in those same sectors look cheap today, but if you look forward a few months, look to a slowing economy and the prospect of static to falling house prices, they don’t look so cheap.

Is The Worst Of The Stock Market Almost Over?

On Monday morning, the market looked forward. It looked at…

• High commodity prices today and in the future.

• High oil prices today and in the future.

Could it also have looked forward at…

• The near bottom of the US stock market?

• The cheapness of some selected industrial, banking and retailing stocks?

• The fact that the stock market bottoms before the economy bottoms, and perhaps, just perhaps, the market can see the bottom of the US economy?

• A soft landing for the Aussie economy, where interest rates start nudging down, house prices flatten instead of falling, unemployment levels stay roughly steady, and the resources boom carries on in a steady state for the foreseeable future?

As usual with economic predictions, there are no right or wrong answers. We’re not saying this is the bottom of the market for industrial, banking and retail stocks. We’re not saying this is the bottom for the US stock market. We’re not saying Aussie interest rates won’t go even higher.

How You Can Profit From This Racing Certainty

But one thing is absolutely for certain…

Stocks are significantly cheaper today than they were a year ago, and cheaper than when they hit their peak in November last year.

We don’t know about you, but we like to buy things on the cheap. And when things are cheap, we like to buy more of them.

It never ceases to amaze us that people who were happy to buy stocks when they were trading at their all time highs just a few months ago are now completely put off the stock market.

A few months ago we mentioned the story of one of our friends who sent us an email saying…

“I don’t think I will EVER buy any more stocks. I invested $3000 and they are now worth just over a grand, what a joke. I am hoping they will climb up to around $1,500 and I am going to sell then, losing 50%, and get out for life.”

Inexperienced investors are often sucked into buying when prices are high, afraid of missing out on future profits. Conversely, they sell when the share price is at a low point, just wanting to get out, to avoid any further pain.

Stock market investing is a great way to build long-term wealth. To give up on it because of one or two bad experiences is a mistake. Instead, a better course of action would be to learn from your mistakes, change strategy, and vow to conquer the stock market.

We Tell You The Exact Stocks To Buy, And When To Buy Them

We tell our Members exactly which stocks to buy, and when, and which stocks to sell, and when. Our stock recommendations and our research and advice is completely independent.

We do not offer any brokerage services, we do not offer any investment banking services and we are not paid by any of the companies that we recommend.

We are long-term investors. We are patient. We minimise risks. We don’t panic. Our stock recommendations reflect those qualities.

There are three main pillars to our success story…

1. We have a passion and an absolute dedication to making you money.

2. We are totally committed to searching for and picking the stocks with the very best chance of rising in value in the weeks, months and years ahead.

3. We will offer you an outstanding level of service.

We firmly believe great stockmarket wealth is accumulated over a long period of time.

The Ups and Downs of 2007/8

We wish farewell and good riddance to tax year 2007/8. It has been a year of ups and downs…

The UPS

• Australian interest rates have risen four times over the past 12 months, and now stand at a mortgage-stressful 7.25%.

• Rents are up, and supply of rental properties remains tight.

• Oil is up 175% since early 2007 and on Friday hit yet another all time record high of US$143 a barrel.

• A rising oil price means higher petrol prices – $1.60 a litre, and rising.

• Gold breached the US$1000 an ounce mark back in March, and today still trades at around US$930 an ounce, up over 40% in the last 12 months.

• The Aussie dollar continues to ride high, trading at around US$0.96 cents, a 25 year high, with many commentators predicting parity in the coming months.

• Global steel prices, iron ore, coking coal, thermal coal and copper, amongst others, all trade at or near their record highs.

• Many resource stocks are significantly higher than the levels they were at 12 months ago. For example, Woodside Petroleum is up around 47%, BHP Billiton is up 26%, Rio Tinto is up 38%, Origin Energy is up 62% and Newcrest Mining is up 48%, just to name a few.

• Some smaller resource stocks have soared over the past 12 months, like these selected companies…

Cockatoo Coal +302%

A Small Oil & Coal Company +215%

Integra Mining +203%

Carnarvon Petroleum +121%

(Total returns from 1st July 2007 to 30th June 2008. Source: Bloomberg)

For more on the small oil and coal company whose share price has gone up 215% in the past 12 months, read on. As you’ll see, not content with the gains to date, even at today’s price we recommend the shares as a BUY.

It’s just one of the ways we think we can help start your new financial year with a bang.

The DOWNS

• The All Ordinaries Index has fallen 15.5% over the past 12 months.

• The same index is down a whopping 22% from its record all time high of November last year.

• Highly indebted companies like Allco Finance, ABC Learning and Centro Properties, amongst others, have seen their shares absolutely hammered.

• Banks and retailers were hit hard as higher interest rates and petrol prices slowed the economy. National Australia Bank are down around 35% in the last 12 months, Westpac is down 20%, Commonwealth Bank is down 27%, ANZ is down 35%, Harvey Norman is down 42% and David Jones is down 48%.

• Uranium, zinc and nickel are all some way off the levels they traded at 12 months ago.

• Some smaller companies stocks have fallen heavily over the past 12 months, including some of our portfolio stocks. We’re the first to admit we’re not perfect, and we do get some of our recommendations wrong, like OceanaGold down 78%, Marathon Resources also down 78% and Biota Holdings down 59%.

We’d love to be able to say to you that the 2008/9 tax year is going to be an UP year for the stock market.

But we can’t say that.

We do have a sneaking feeling it may be an up year, mainly because we expect resource stocks to continue their merry way, but also because we suspect a strong buying opportunity for banks and selected industrials and retailers may be just around the corner.

Our Members will be the first to know when we recommend selected bank, industrials and retail as a BUY.

Our One Guarantee – There Will Be HUGE Winners In 2008/9

We can guarantee one thing however…amongst the literally hundreds of smaller resource stocks, there will be some HUGE winners in 2008/9. That’s the easy part. Knowing which stocks today will be the huge winners of tomorrow is obviously the hard part.

Although we follow larger companies, often recommending them as a BUY when we think the time is right, the area in which we really specialise is in smaller companies, and particularly smaller resource companies.

As we alluded to above, we don’t get every recommendation right. But the good news is that to be a successful investor, you don’t have to get every selection right.

The very best investors, investment bankers, traders, hedge fund managers, portfolio managers and the like aim for a 60% strike rate of winners versus losers.

Our 3 Keys To Investment Success

A 60% strike rate doesn’t sound super exciting. But at that level, most investors should be able to generate above average returns.

The key thing to understand is that share prices can go up thousands of percentage points, but can ‘only’ go down 100%.

We’re generally looking for 3 things from our model share portfolios…

1. Smaller companies with the potential to double, triple, quadruple and more over periods lasting from several months to several years.

2. Larger companies with good share price downside protection whilst offering above average returns in the months and years ahead.

3. More winners than losers.

We think we’ve been doing a pretty good job with our share recommendations. But ultimately our Members are the ones that really count, the ones who make the only judgement that counts to us.

These Stocks Have More Than Quadrupled In Under 3 Years

Above we mentioned our preference for smaller companies, and that we are generally looking for companies with the potential to double, triple, quadruple and more in value over periods lasting from several months to several years.

Take these companies we initially recommended to our Members when they were small companies, each worth less than $30 million at the time of recommendation…

Carnarvon Petroleum – Up an amazing 881% since February 2006!

Platinum Australia – Up an astonishing 711% since November 2005!

Terramin Australia – Up a breathtaking 667% since December 2005!

(Share prices taken on Monday 30th June 2008. Gains don’t include dividends.)

An Incredible Buying Opportunity

A couple of months ago, Wilson Asset Management principal Geoff Wilson was quoted in the AFR as saying some “exceptional” opportunities have presented themselves, particularly in the mid-to-small company sector.

“I am more excited about the next 12 months than I have been in the last two or three years.”

Fast forward to today, and on Monday this week Wilson Asset Management portfolio manager Matthew Kidman was quoted in the AFR as saying…

“Over a period, this will look like an incredible buying opportunity, but sentiment is just awfully negative. With bear markets, it just takes a while (for things to improve)”.

We couldn’t agree more. Whilst we are cautious on the short-term outlook for the stock market, on a long-term perspective, we are seeing some excellent value in some of our specially selected smaller resource companies.

The Small Oil & Coal Company Whose Best Days Could Be Still Ahead

Take the small oil and coal company we highlighted above, the one whose share price has already soared 215% in the last 12 months alone.

Not content with that gain, just last week we re-recommended the company as a BUY to our Members.

We initially recommended our Members BUY the company at 5.9 cents way back in December 2005. At the time of our recommendation, the whole company was only worth around $10 million.

In March this year, the share price was a disappointing 4.4 cents. As you may recall, it was about that time that the stock market was in a state of fear and panic. Margin calls were rife, panic selling abounded and smaller companies, particularly smaller resource companies, saw their share prices particularly hammered.

We concluded our March 2008 report on the company with…“Although the current share price performance does not demonstrate it, we believe that exciting times lie ahead for shareholders and that 2008 should be a positive year.”

Little did we know, but just 2 months later, the company announced a “company transforming” acquisition in a deal worth $235 million. As can be seen from the chart below, the stock market clearly liked the acquisition too, with the share price rocketing to over 30 cents.

Today the shares have slipped back a little to around 21 cents, but that is still a gain of 366% since our report in March 2008 and a gain of 247% since our initial BUY recommendation in December 2005.

But we don’t think the gains are going to be finished just yet, as judged by our BUY re-recommendation at around 20 cents of just last week.


There are two other key facets of our investing strategy…

1. There can be substantial profitable investing opportunities for long-term Members. For people who bought this company way back in December 2005 but didn’t follow our regular updates about the company in the months and years that followed, we think it might be likely they’d have sold out in frustration and/or boredom, perhaps even booking a loss, but definitely missing out on the huge profits long-time Members may now be sitting on.

Not having a long-term perspective and not following our recommendations over a number of years could prove to be a very expensive mistake.

2. We are patient, long-term investors. Although the share price performance of this company was disappointing for long periods of time, we didn’t lose faith in the company and in particular, their management.

In a stock market rife with short-termism and the desire for quick profits, we like to think we stand out as different – and we think the example of this company and our long-term investing record show that difference in action.

Your Huge Investing Advantage

Because the company was so small, it didn’t get onto the radar of the big investment houses.

That’s where the smaller private investor has a huge advantage, because lurking around in the small company universe are many hidden stock market gems that just won’t get noticed by larger investors.

As we said previously, the three big winners we mentioned above – Carnarvon Petroleum, Platinum Australia and Terramin Australia – were all initially recommended to Members when they were each worth less than $30 million.

After their tremendous share price performances, each is worth significantly more, and only now are institutional investors getting interested in these companies. In the meantime, Members who bought in at our initial recommendation prices should already be sitting on significant profits, with potentially more to come.

The Small Gold Miner We’ve Just Re-Recommended As A Buy

Then there’s the small gold producer/explorer we recently recommended as a BUY to our Members.

• We first began following the company’s progress more than two years ago. We’ve been greatly impressed by their ability to deliver on their exploration and development goals.

• The final piece in the jigsaw puzzle is now in place, as the company has just produced its first gold bar. The commissioning of their initial Brazilian gold mine, well below budget, is a major feat considering the current environment of delays and cost blow-outs right across the resources sector.

• This is NOT a speculative resource play. We firmly see the company as a long-term generator of wealth for shareholders. The company is run by what we consider to be one of the resource sector’s most highly regarded boards and management teams, which have a goal of building a high quality and growing mid-cap gold producer.

• We believe the rewards for shareholders will be in the form of sustainable capital growth and dividends driven by long-term production and exploration success, rather than many of its peers with a short-term focus on chasing whatever commodity might currently be ‘hot’ to generate short-term share price appreciation.

• We have every confidence in the company’s eventual ability to reach its annualised production target of 35,000 ounces. With the gold price at around A$960 and their anticipated production costs of around $A450 an ounce, we’re very confident the company will generate robust cash flows, and we think that should ultimately be reflected in a sharply increased share price.

• We concluded our recent report by saying we think the recent share price weakness provides an astute buying opportunity, even for existing holders. Accordingly, we recommend the company as a BUY to all Members around 60 cents.

The good news is the shares still trade at around the 60 cent mark they were at when we recently recommended them as a BUY.

After the market’s “horror” June, we believe the share prices of some of our specially selected small resource companies are looking decidedly cheap.

We wish you happy and profitable long-term investing.

P.S. The Aussie stock market has just endured its worst June performance in 68 years and its worst financial year in more than 25 years. Yet Glenn Mumford said in the AFR this week “…investors should avoid assuming the worst…it’s not difficult to construct a positive trajectory for US equities.” And most people agree what’s good for US shares is good for Australian shares.

P.P.S. The oil price is high and remains high. As a reminder, we believe triple-digit oil prices are here to stay, and that oil could easily trade as high as US$200 per barrel. On the downside, it means high petrol prices are here to stay. But on the upside, we think we’ve found a unique collection of smaller oil companies that are set to benefit hugely from the high and rising oil price in the months and years ahead. We believe, once again, the June stock market sell-off is offering new Members some compelling investment opportunities right now.

Stock Research: Salinas Energy (SAE)

Independent California oil producer
Operator
Using horizontal drilling
40,000 acre land position
30 staff: 7 in Australia, 23 in US (operational base)

Recent share price: 35 cents
Shares out: 241m
Market cap: $84m
Net cash: $7m (no debt)
Company currently buying back shares
Year end: 30th June
$55m accumulated losses

Current production/forecasts

30th June 2008
http://www.asx.com.au/asxpdf/20080630/pdf/319wzgg7ph3j0y.pdf

30,000 bbls
US$3m revenue
1,350 bopd
Still on target for 287,000 bbls for calendar 2008
At current oil prices (US$140/bbl), 2008 calendar year sales expected to exceed US$25m.

May 2008

http://www.asx.com.au/asxpdf/20080526/pdf/3199qjlv6p5q74.pdf

1,100 barrels per day production
US$20m revenues forecast for 2008 (based on US$85 less US$13 heavy oil discount oil price)
287,000 barrels production forecast for 2008
Targeting 2,000 bbls/day production by end 2008
- @US$80/bbl (net) = US$50 - US$60m annualised revenue
- @US$100/bbl (net) = US$65 - US$70m annualised revenue

BJ forecasts

Calendar 2008
287k bbls * US$90/bbl = US$26m revenue
Operating profit = ~$US$15 (60% margin, no tax)
Less development and exploration costs

Calendar 2009
US$60m revenue
Operating profit US$30m
Less development and exploration costs

Comments/Summary

* Low risk production, with some upside.
* P/E on calendar 2009 operating profit -> 3.
* Potential for P/E for current operations to be re-rated, although production profile falls (see page 11 on 26th May 2008 presentation, linked above).


* Paris Valley should be low-risk upside
* Plus exploration targets Merlot and Osso Bucco
* SAE estimates risked value of these 3 at $1 per share

Significant share price re-rating probably depends on exploration success, as increased NSA production coupled with the increased oil price is not moving the share price.

SALINAS BASIN

1. North San Ardo (NSA) field

15m barrels in place
5.5m barrels 2P recoverable reserves
Phase 1 (2 years): Primary production
Phase 2 (10 years +): Secondary production steam enhanced
Peak production in early part of each phase.
11/11 well success
2,000 bpd facilities in place
Operating costs US$11/bbl
Royalties 22%

Drilling 8 wells in 2008

2. McCool field

5m bbls in place
Heavy oil
Potential 1m bbls recoverable
Extended well testing in Q2/3 2008

3. Paris Valley (SAE 50%)

100m+ bbls in place
Targeting 25m bbls recoverable
Heavy oil

Drill late 2008

EXPLORATION

Southern San Joaquin focus
Light oil
Targeting 50% equity

2008 Prospects
a) Paloma field and Osso Bucco prospect
Recoverable potential -> Mean 11m bbls, Upside 28m bbls

b) Merlot
Recoverable potential -> Mean 18m bbls, Upside 46m bbls

Stock Research: Wotif.com (WTF)

http://finance.google.com/finance?q=ASX:WTF

Share price: $3.10
Market cap: $645m
Shares out: 208m
Net cash as at Dec 2007: $108m (less travel.com.au $44m and Asia Web Direct $17m acquisitions = ~$50m)
Trade and other payables as at December 2007: $138m, including $44m for travel.com.au
2008 P/E -> 19 (EPS ~16.5 cents)
2008 forecast dividend -> 15 cents or 4.8%
2009 forecast P/E -> 14 (EPS 22 cents), or 33% growth. Too optimistic?
2009 forecast dividend -> 19 cents or 6.1%

Comments:

Positive

- Dominant Australian online hotel room booking channel for the wotif.com.au brand.
- Asia Web Direct gives them access to that fast growing region.
- High operating margins.
- Negative cash cycle (receives cash on sale, pays hotels later)
- Some recent director buying.
- Fair value based on 2009 forecast P/E and dividend yield.

Negative

- Overpaid for travel.com (~20 to 25 times earnings)
- Integration risks with acquisitions.
- Increasing and focusing on offline marketing spend. Word of mouth growth presumably slowing, although marketing has the potential to further boost growth rates.
- Facing economic headwinds in Australia.
- Increased competition (what impact?)

Verdict

- Wait for 2008 full results, checking net cash position and integration of acquisitions.
- Shares may have further to fall, as 2009 forecasts may be optimistic coupled with economic headwinds.
- Trailing P/E of 15 = share price of $2.50, or ~20% less than today's share price.
- Forward P/E of 15 on more conservative 2009 EPS of 19.5 cents = share price of $2.90 cents, or 6.5% less than today's price.

Full year results due 27th August 2008

June 2008

FY2008 NPAT forecast(23/6/08): $34.5m vs $26.4m (+30%)
Therefore H2 2008 NAPT: $17.4m vs $14.5m (+20%)
P/E -> 18.7
PSR -> ~7.5 (~$85m annual revenue)

February 2008

Acquire Asia Web Direct for $34.2m -> $17.1m cash & 3.6m shares ($4.75 per share)
Annual EBITDA: ~$2.3m -> P/E on purchase price of 15
http://www.asx.com.au/asxpdf/20080204/pdf/3178y4v9kkyn04.pdf

Half Year ended 31st December 2007

H1 2008 TTV: $310m vs $251m
H1 2008 revenue: $41m vs $31m (+32%)
HI 2008 NPAT: $17.1m vs $11.9m (+ 44%)
Net profit margin: 41.4%
H1 Dividend: 6 cents vs 5 cents
H1 EPS: 8.3 cents vs 5.7 cents (+46%)
User sessions: 3.2m per month vs 2.5m (+28%)
Room nights sold: 2.2m (+22%)
Room rates: $144 vs $137 (+5%)
http://www.asx.com.au/asxpdf/20080220/pdf/317k0gnqzfhf6b.pdf

November 2007

Announced acquisition of travel.com.au (TVL) for $50m, trumping Webjet's offer.

In the 6 months to December 2007, TVL...

TTV: $68m
Revenues: $7.5m
EBITDA: $0.8m

One Big and One Small Stock To Buy Today

It has been a tough 12 months for stock market investors, but we firmly believe there are some excellent value stocks you can buy today.

Below we highlight the one and only banking stock we like today, plus a selection of some of our very favourite resource stocks, including one BIG one and one SMALL one to BUY today…

Dear Battered and Bruised Stock Market Investor,

The 2007/08 tax year is almost at an end.

For stock market investors, it’s been a shocker, with the All Ordinaries Index slumping a wealth destructing 14% over the past 12 months.

But we have got two reasons to smile …

1. The resources sector continues to run red-hot, with iron ore prices up 85%, the oil price still hovering near record highs, and predictions Australia’s commodity exports will grow by another 40% next financial year. It all bodes well for our specially selected resource stocks.

2. Because of (justified) jitters about the state of the global economy, specifically the US and the spectre of rising inflation, the stock market has been falling, dragging the price of many resource stocks down with it. That gives us the opportunity to pick up some specially selected resource stocks at cheaper prices than they were just a few short weeks ago.

The Super Dream Gone Wrong

A year ago, with the stock market riding high, the Howard Liberal government’s superannuation reforms encouraged thousands of ordinary Australians to tip billions of additional dollars into super funds.

Investment properties were sold and the cash added to super funds. Financial advisors and planners were working over-time. Some people even borrowed money in order to maximise the amounts they could put into super.

It was almost entirely done in the name of tax. Superannuation is an excellent tax-efficient way of saving for your retirement.

But what many ordinary Australians failed to even consider was that the stock market can go down as well as up.

For years, we’ve been spoilt. We’ve been used to consistent double digit capital returns from the stock market, plus impressive dividend returns. You had to go all the way back to 2002 to find the last calendar in which the Australian stock market fell. Before that, it last fell in 1994.

Put another way, since 1994, the stock market as measured by the All Ordinaries Index, has fallen in only one calendar year.

Faster Than A Brett Lee Thunderbolt

That’s one down year in 13 years.

One of the mistakes many investors make is assuming the near-term past will be replicated in the long-term future.

So…up until November 2007, because the stock market had been rising strongly for many years, financial advisors, investment bankers, private investors, mums, dads, bar staff and taxi drivers simply assumed it would carry on doing so in 2008, 2009, 2010 and for every year ahead.

Welcome to reality.

In the short-term, the stock market is not a one-way bet. Many factors influence its short-term direction, and these can and do change almost on a daily basis.

Economic data is released faster than a Brett Lee thunderbolt. One piece of data is often in direct conflict with another piece of data. One person will interpret the data one way, another person will interpret it an entirely different and opposing way.

Often there are more questions than answers. For example, at the moment we have…

Question #1 : How High Can The Oil Go?

The oil price continues to dominate the news. We have OPEC saying the high price of oil is all due to hedge funds and financial speculators.

On the other hand, we have governments around the world, including our own here in Australia, telling OPEC the high oil price is because demand is exceeding supply, so please Saudi Arabia, pretty please Saudi Arabia with sugar on top, can you please please please pump some more oil?

Please Pump More Oil

It will bring down petrol prices for our gas guzzling western economy voters, help us ease inflation, and help get our greedy economies back on the straight and narrow. Please pump more oil.

There is a strong “global warming” argument that the oil price should remain around where it is now. Slowly but surely the high petrol prices are starting to change our behaviour – we are driving less miles and kilometres, we are dumping petrol guzzling V8s for fuel efficient smaller cars, airlines are cutting capacity, we are increasingly thinking about switching to hybrid cars and more bicycle lanes are being built.

And that’s not all that can be done to reduce our utter reliance on petrol – try things like car pooling, walking and cycling to work and school, working from home, and leaving the car at home and taking public transport, just to name a few.

Anyway…what does the high oil price all mean to us as stock market investors?

• On the one hand, we have some commentators predicting the oil price is in a bubble and is set to fall back from its current US$135 odd a barrel back to US$100 a barrel over the next few months.

• On the other hand, some people are predicting the oil price is only headed higher, both in the short-term and in the long-term.

• But a higher oil price will unleash even higher inflationary pressures. Inflation is the economy’s public enemy number 1, and will be fought with higher interest rates, which in turn, by definition, slow the economy. We’re staring at a classic catch-22 situation.

We told you there were more questions than answers.

We Got This One Wrong…But It’s Still A Winning Bet

We aim to answer the questions. We don’t get every answer exactly right.

For example, at the beginning of 2008, we said we remained bullish on oil. But we didn’t remain bullish enough, setting our 2008 oil price target at US$90 a barrel.

So…one point for a right answer and minus one point for a wrong answer.

But in this game – the game of long-term stock market investing – you can get unlimited points for a right answer but only lose one point for a wrong answer. That’s because shares prices can go up thousands of percentage points, but can ‘only’ go down 100%.

Whilst the oil price has risen substantially above our short-term target of US$90 a barrel, we haven’t been recommending our Members sell any oil company shares. On the contrary, we’ve been recommending they BUY shares in some of our specially selected favourite oil companies.

Oil Set To Hit US$200 A Barrel

At the same time, we’ve modified our thoughts on the oil price, saying…

• We believe triple-digit oil prices are here to stay.

• We believe oil could easily trade as high as US$200 per barrel.

When it comes to the high oil price, we firmly believe in the “demand exceeding supply” argument rather than it being driven by financial speculators.

Take these facts…

- Oil is a naturally depleting commodity.

- The last major oil discoveries occurred in the late 1970s and early 1980s.

- Almost all of the world’s cheap and accessible oil has already been discovered.

- The world currently has around 6.7 billion people, many of whom are utterly reliant on oil. The world population is expected to reach nearly 9 billion people by the year 2042.

- The current alternatives to oil are either unproven, very expensive or impractical.

So there you have it. Over the long-term, we believe the oil price will rise inexorably higher, not withstanding the odd hiccup.

Fight Them Not On The Bowsers, Beat Them On The Stock Market

As we’ve said many times before, the way to fight higher petrol prices is to buy some specially selected oil stocks.

Our preference has always been for smaller oil companies.

In fact, right now we think we’ve found a collection of smaller oil companies who generally have similar characteristics, being…

- The fly largely under the radar of the large institutional investors, meaning the shares are relatively cheap.

- They have outstanding leadership teams, many of whom we have personally met, and all of whom have extensive oil company experience, often in much bigger companies.

- They are already profitable oil producers, mostly with little or no debt.

- They have outstanding exploration prospects.

In a nutshell, at today’s prices, we believe many of these smaller oil companies are fairly valued based on their current production and profits, with the option of significant exploration success thrown in for free.

It’s our oil-stock version of investing with a large margin of safety.

Question #2: Is This A Resources Bubble?

We’ll let you work out the answer to this one yourself…

• Macarthur Coal went into a trading halt earlier this week as foreign suitors continued to circle the business. The shares were suspended at $20.73, at which price they trade on a price-to-earnings ratio of around 60 times – a quite astoundingly high valuation for a commodity business. There’s seemingly no shortage of steel producers willing to pay that high a price to secure Macarthur’s environmentally friendly PCI coal.

Do you think they see any end to the resources boom?

• After months of negotiation, Rio Tinto has just secured an iron ore price increase of 85% with Chinese steel-maker Baosteel.

Do you think Boasteel would be prepared to agree to such a massive increase if they could see any end in sight for the resources boom?

• The Australian Bureau of Agricultural and Resource Economics (ABARE) this week predicted the value of Australia’s total commodity exports is predicted to rise by 40% next financial year.

Does that sound like the end of the resources boom?

• There is a mini power crisis going on right now in Western Australia, following the explosion that took place recently at the Varanus Island gas hub, located in the North West Shelf region offshore Western Australia.

The facility is responsible for supplying some 30% of WA’s domestic gas needs. The government is encouraging people to turn lights off and to take four minute showers to save power.

It sounds to us like Western Australia needs to discover more gas, and preferably quite quickly, or else it won’t be just their two AFL teams who are left in the dark in 2008. What do you think?

As it happens, we are quite familiar with the North West Shelf area of Western Australia, principally because one of our favourite smaller oil and gas companies is currently drilling for gas in that exact area.

They are targeting a potentially lucrative discovery in the vicinity of 1 trillion cubic feet (TCF) of gas, which could more than double their existing petroleum reserve base.

Importantly any discovery could be brought into production quickly and cheaply.

Results from this potentially transformational well are due any day now. If they are positive, the share price of this smaller oil and gas company could literally take-off.

Question #3: Is It Time To Buy Aussie Banks?

We continue to be amazed at the fascination with banking stocks. We guess it comes down to a few points…

- Many people have become shareholders in banks courtesy of their privatisation over the past 20 odd years.

- Until very recently, bank shares have made for exceptional long-term investments.

- The Big Four Australian banks operate in a quasi cartel. Mortgage rates are remarkably similar, as are savings rates. This cosy togetherness has resulted in all four banks recording high and growing profits, much to the delight of the thousands of shareholders.

- Banks have been some of the highest dividend yielders on the market. Coupled with their collective dominant market position and therefore implied safety, they have become a firm favourite amongst self managed super funds and retirees in general.

- If you can’t beat them, join them. Rather than forlornly venting our frustration at the increasing number and increasing cost of the myriad of bank fees, people have instead bought shares in the banks.

- Private investors just love retailers and banks. They see them at their local shopping centre, and use them. They recognise the brand names. If their broker or financial advisor gave them a choice of buying shares in Commonwealth Bank or Terramin Resources, we suggest they’d plump for the bank. Why? They’ve heard of Commonwealth, but not Terramin. Strange but true.

We continue to avoid most banking shares. For us, it is not the time to be buying banks…

- The Australian economy is facing some strong headwinds.

- Inflation remains annoyingly high.


- Unemployment is edging higher.

On top of all that, we believe house prices are soon to come under increasing pressure, with a material risk of a fall.

The Scary Truth About House Prices & Bank Shares

We don’t wish to scare you, but US house prices are already down around 16% from their peak.

Then just last week, HBOS, owner of BankWest and the United Kingdom’s biggest housing lender, forecast UK house prices would fall by 9% in 2008.

If you thought Australian banking shares were becoming cheap, and some of them having fallen by around 33% from their recent peak, shares in the UK’s HBOS are down a whopping 75% from their peak and now trade on a trailing price-to-earnings ratio (P/E) of just 2.5 times.

To put that into perspective, if Commonwealth Bank were to trade on a trailing P/E of 2.5 times, its share price would be $6.80, down from the $40 it trades around today and the $60 it traded at as recently as November last year.

That sort of share price carnage is not about to befall Commonwealth Bank or any of the other major Australian banks. But it is a stark reminder that banks are extremely profitable in times of economic prosperity, yet in times of rising mortgage defaults and falling house prices, profits can virtually disappear, as can share prices!

The One & Only Bank We Are Buying Today

As we said above, we continue to avoid most banking shares.

But not all of them.

Very recently, we re-recommended one of the Australian mid-tier banks as a BUY. The company trades on a forward P/E of around 9-10 times and a forward dividend yield of around 7-7.5%, or more than 10% on a grossed up basis.

In line with the rest of the banking sector, the shares are substantially off their recent high.

Yet recent times have seen positive sentiment returning to the share price. Added to that, in the light of the Westpac takeover for St George, we are of the opinion that this company could also become a takeover target.

All in all, this is the only bank we are happy to recommend as a BUY, and although we anticipate that several months of consolidation and base building will be required before a sustainable revival of upward share price momentum emerges, we are very confident in the long-term prospects of this particular bank.

Question #4: Is It Time To Buy Shares Now?

Good question.

Our general view is that time to buy is now. It is always now.

But there are two important catches…

Catch No 1: It’s only time to buy THE RIGHT SHARES now.

Catch No. 2: It’s only time to buy shares now if you are prepared to hold them for the long-term.

As we’ve said plenty of times before, we think the resources boom is set to last for years and even decades ahead. The unprecedented great Chinese urbanisation is only just beginning. China has one of the lowest urban-to-rural ratios in the world, yet have the largest population in the world.

We could go on, but we think you get the message – we are firmly of the opinion that resources stocks still offer share market investors the best prospect of long-term capital gains.

We’re not all talk either – one look at our hypothetical portfolios show they are packed with our very favourite resources stocks.

We have big ones and small ones. Low risk ones and higher risk/higher reward ones. We have gold ones. We have oil ones. We have zinc ones. We have uranium ones. We have iron ore ones. Silver ones. Copper ones. Coal. Gas, and more.

For example…

BUY This Big One

Just last week we recommended this large diversified miner as a BUY.

The company has recently announced it is merging with another large Australian miner. We believe this ‘de-risks’ the company and sets the foundation for the combined entity to become a significant force in the diversified mining sector.

Indeed, the company will be Australia’s third largest diversified miner behind Rio Tinto and BHP Billiton, and the fifth largest miner on the Australian Stock Exchange.

The combined company offers broad based exposure to our view of continued commodity price strength. And the best part about this large diversified miner is that it is cheap, trading on a single digit price to earnings ratio.

We concluded our buy report with “…we believe the stock will be re-rated as future earnings growth comes into view in the months ahead.”

BUY This Little Copper One

Also just last week, we recommended this small copper explorer as a BUY.

We have followed the steady progress the company has made on its African exploration projects for the past few years; however only now do we believe the time is right to recommend the shares as a BUY.

The company has a major ground position in Botswana and is aggressively pursuing development of its primary project, a large copper deposit. The company looks cheap compared to its copper sector peers, which has prompted our initial Buy recommendation.

The charts back up our buy recommendation – we believe the company offers considerable upside potential over the longer term. Despite periodic bouts of volatility, a firm upward trend has emerged since 2005 and we anticipate further gains in due course.

We concluded our buy report by saying the company “…combines an attractive portfolio of mineral assets in Africa that are at advanced stage of development. The company’s market value is modest, but the upside in our view is enormous, driven by its large ground position and the potential for more discoveries.”

We think there’s a good chance the ONE BIG ONE above and this ONE SMALL ONE pass our test of being the right shares to buy now and to hold for the long-term.

We wish you happy and profitable long-term investing.

P.S. Remember the brand new Northern Territory iron ore producer we mentioned last week? At the time, the shares were around 77 cents. This week the shares closed Monday at just 64 cents. But that was before Rio Tinto agreed its massive 84% iron ore price hike. It seems that woke up the stock market to this company again, as the shares soared an astounding 12.5% on Tuesday alone. Yet they are still trading below the 77 cents of just one week ago. We just love these types of compelling and profitable stock market opportunities.

Three Tax and Six Share Tips

In this week’s bumper issue, we tell you exactly who to blame for the high petrol prices, and what you can do about it.

We also exclusively reveal a way that George W Bush can befriend the American people, AND leave a memorable lasting legacy…for the right reasons.

Finally, we give you details of 3 cheap small resources stocks we think could be set to fly higher in the days, weeks and months ahead.

Dear Fellow Tax Payer and Stock Market Investor,

The end of the 2007/8 tax year is just around the corner.

It’s been a tough 12 months for stock market investors, with the All Ordinaries index down around 13% since the end of June last year.

The last weeks in June are always a good time to review your tax situation. Everyone’s individual circumstances are different, and you should take tax advice where necessary and appropriate, but here are 3 things you could potentially do to reduce your 2007/8 tax bill…

1. Minimise your capital gains tax liability by either selling some winners to offset against capital losses, or selling some losers to offset against capital gains.

2. Prepay interest on margin loans.

3. You may be able to claim subscription costs against your tax.

Public Enemy Number 1 Raises Its Ugly Head

Meanwhile, back on the general economic front…

Can you feel the economic headwinds whistling down your computer screen?

We can.

Inflation is on the rise, not just here in Australia, but globally. The ever rising oil price is largely to blame.

Yet at the same time, economic growth is slowing.

The traditional cure for a slow economy is to lower interest rates.

But lower interest rates lead to higher inflation. And world central bankers have long made inflation public enemy number 1, so they are reluctant to lower interest rates.

In the US, to counter the growing threat of inflation, economists and central bankers alike are now making noises about raising interest rates – not long after they’ve just slashed them from 5% all the way down to just 2%.

But higher US interest rates will put even more pressure on US house prices. The whole sub-prime mortgage crisis, complete with home foreclosures, is still playing out in the US. You would think an interest rate rise would be the final nail for the US economy, plunging it into a deep recession.

Can This Be George W Bush’s Lasting Memorable Legacy?

But wait…there’s more. As part of George Bush’s “farewell and thanks for the memories” world tour, some people are suggesting the US government will eventually be forced to take on the debt of some of the more mortgage-stressed US citizens…

- to save them

- to save the US economy

- to save their houses

- to save banking stocks

- and to give George W Bush a legacy other than to be remembered for the Iraq invasion.

Our opinion since the whole sub-prime crisis first surfaced back in August last year has been the US government and economists will save the economy first, and deal with the consequences later.

Lowering interest rates and the sending cheques to many financially challenged US citizens has been the first step. As we’ve long been saying, lower interest rates and printing more US dollars will ultimately result in increased inflation.

Whatever happens, and especially if the US government ends up personally bailing out mortgage-stressed citizens, we think increased US inflation is as good a certainty as Tiger Woods was to win the US Open playoff.

And, as we’ve been telling you for some time now, increased inflation is good for oil and gold.

Gold spiked above US$1000 an ounce back in March. It’s off the radar a little right now, but gold is the natural hedge to rising inflation, so we think it will be back above US$1000 an ounce in the not too distant future.

As an aside, as this email goes to press, we are feverishly researching the entire gold sector, hunting for yet more hidden gems of gold mining shares. We expect to update our thousands of Members in the coming weeks.

Gold Price Up 20%, Gold Shares Up 100%

Why buy shares in gold miners rather than just buy a few gold bars?

It’s all about leverage. This occurs when production costs rise at a slower pace than the revenue received from gold sales. This effect is known as operating leverage and results in profits growing at a faster rate than revenue.

As an example, a company selling gold at $500 per ounce with costs of $400 will earn $100 for each ounce sold. If costs remain fixed and gold increases by 20% to $600 per ounce, then the company’s profits will rise to $200.

In this case, a 20% rise in the price of gold has translated into a 100% increase in profits.

In such a scenario, the share price performance of the gold miners should substantially exceed that of the gold price.

Voila.

The Small Gold Miner We’ve Just Re-recommended As A Buy

With that in mind, just last week we recommended our Members BUY more of one of our very favourite small gold explorer shares.

· We first began following the company’s progress more than two years ago. We’ve been greatly impressed by their ability to deliver on their exploration and development goals.

· The final piece in the jigsaw puzzle is now almost in place, as the company moves towards production of its first gold bar – the commissioning of their initial Brazilian gold mine, well below budget, a major feat considering the current environment of delays and cost blow-outs right across the resources sector.

· This is NOT a speculative resource play. We firmly see the company as a long-term generator of wealth for shareholders. The company is run by what we consider to be one of the resource sector’s most highly regarded boards and management teams, which have a goal of building a high quality and growing mid-cap gold producer.

· We believe the rewards for shareholders will be in the form of sustainable capital growth and dividends driven by long-term production and exploration success, rather than many of its peers with a short-term focus on chasing whatever commodity might currently be ‘hot’ to generate short-term share price appreciation.

· We have every confidence in the company’s eventual ability to reach its annualised production target of 35,000 ounces. With the gold price at around A$950 and their anticipated production costs of around $A450 an ounce, we’re very confident the company will generate robust cash flows, and we think that should ultimately be reflected in a sharply increased share price.

· We concluded our report of last week by saying we think the recent share price weakness provides an astute buying opportunity, even for existing holders. Accordingly, we recommend the company as a BUY to all Members around 60 cents.

The good news is the shares still trade at around the 60 cent mark they were at when we recommended them as a BUY just last week.

As The Oil Price Rises, The Gold Price Looks Set To Follow

The other piece of potentially good news is the fact that the gold-to-oil ratio has fallen to its lowest level in some time, pointing to an oversold position in gold relative to crude oil.

In recent years, the price of gold has been at a ratio of more than 9 times the price of oil. Following oil’s meteoric rise however, the ratio has slumped to around 7 to 1. We would expect the ratio to return to longer-term levels in the years ahead, as gold resumes its upward trend.

All in all, we are confident in the future prospects for this Brazilian emerging gold producer and the gold price itself. We think the company itself is worth significantly more than the $90 million it is currently valued at, even with gold prices where they are today.

But the real excitement for this company could come with an increasing gold price. If, as we expect, the gold price exceeds US$1000 an ounce again in the not too distant future, we could expect some serious share price excitement to closely follow.

Who You Can REALLY Blame For High Petrol Prices

Oil remains firmly in the headlines.

A Nielsen poll published in the Sydney Morning Herald this week said 78% of Australians want the government to cut fuel prices, and 56% were unhappy with Prime Minister Kevin Rudd's handling of fuel prices.

Yawn.

It’s like asking turkeys if they’d vote for Christmas.

Of course turkeys don’t like Christmas and of course the majority of Australians don’t like high petrol prices.

But don’t blame Kevin Rudd for high petrol prices. There are a host of other people and entities you can blame, for example…

· OPEC, for not pumping significantly more oil, presuming they could, which is a big assumption. Let’s blame them regardless.

· Various governments around the world, for not granting sufficient oil exploration licenses for years previous.

· The falling US dollar. OPEC has previously said that for every one percent decline in the dollar, the oil price rises by US$4.

· Oil speculators, for punting on a rising share price, hence sending it yet higher still.

· China and other Asian countries who are subsidising the oil price, hence cushioning their local companies from the full effect of the sharply increasing oil price. The end result is that the higher oil price is not affecting demand, as it should do.

If you want to get annoyed about high petrol prices, pick one of the above, print off a picture of Iran, John Howard, George Bush, George Soros and the Great Wall of China, stick it on your wall, and throw darts at it.

Hopefully it might make you feel a bit better.

But we suspect it won’t make you feel better for too long.

The Oil Price Was Supposed To Fall – But It Rose Instead

For example, this week, the oil price was supposed to fall.

On Monday, Reuters reported…

“The world's top oil exporter Saudi Arabia will boost output next month to the fastest rate in decades to help keep pace with demand and tame what it sees as unacceptably high fuel prices.”

Later on Monday, after the European markets had closed, the Financial Times of London reported…

“Oil surged to a record near to $140 a barrel on Monday as traders brushed aside reports that Saudi Arabia plans to increase production in order to cool the market.”

So much for that idea then.

We’re not surprised. In fact, we were one of the first mainstream organisations to predict oil would hit US$100 a barrel.

We like to keep it simple. To us, high oil prices are largely a result of the falling US dollar coupled with very tight supply versus demand dynamics.

We’re not the only ones who think that.

The Scary Truth About Oil – It’s Running Out Faster Than You Think

This week, as reported in the Australian Financial Review, the world’s 2^nd largest energy company, Royal Dutch Shell, said it sees it as a certainty that oil and gas supplies will not match demand by 2015.

2015 is not far away.

It takes years and decades to discover and bring into production new oil fields.

2015 suddenly feels very close.

If something is not done now about either curbing oil demand and/or increasing oil supply, you can forget about the petrol price falling back below $1.50 a litre.

Expect to pay $2.50 to $3 a litre for petrol in the not too distant future.

It’s a scary thought.

You’ll have to car-pool. You’ll have to catch public transport. You’ll have to do more walking. You’ll have to learn to ride a bike again.

Very scary.

But there is hope. Humanity has successfully evolved, changed and innovated over the centuries. It will do so again. Where there is a will, there is a way. We just need a few more people to be willing, like the US and China for example, and then we’ll find a way.

We’re no saints here in Australia either, with our insatiable demand for bigger houses, flat screen TVs, multiple cars per family and many other oil and energy guzzling luxuries.

Oil To Hit US$200 A Barrel

Through all this uncertainty, we think one thing is certain – the oil price will keep rising.

Oil’s current climb to around US$140 a barrel is just part of a strong upward trend in price that has been underway since 1997.

In fact, we have just made our boldest ever oil price prediction…

“Over the longer-term we believe oil can trade at much higher prices, although over the short-term it could be vulnerable to some profit-taking. Over the next few years however, we believe oil could easily trade as high as US$200 per barrel.”

So what’s a stock market investor to do, apart from driving less, walking more and generally reducing our energy needs?

Buy oil stocks of course.

But there is a catch.

The 6 Large Commodity Companies We Like Today

You must buy the right oil stocks.

As we’ve said here on many previous occasions, you could do a lot worse than just buying a large company energy company like BHP Billiton. In fact, last week we named BHP as one of our top 6 large-cap commodity companies today.

Whilst we think these 6 large cap commodity companies offer investors the prospect of solid long-term returns, it’s the smaller end of the market that we usually find our biggest winners.

Last week, we also said…

“At the smaller end, we anticipate the recent volatility will provide some additional buying opportunities.”

In the past few months, we’ve seen an almost unprecedented level of stock market volatility. The economic headwinds we mentioned earlier mean that one day the stock market is all gloomy because it can’t see an end to the credit related woes. The next day, the market is euphoric as suddenly it can see the light at the end of the tunnel.

Smaller companies often get hit the hardest on the down days, and then, perversely, don’t benefit as much on the up days. Even more bizarrely, we’re often seeing the share price of smaller oil companies fall on the same day the oil price hits yet another record high.

Two Even Cheaper Small Commodity Stocks

But that sort of stock market activity doesn’t faze us. On the contrary, we like it when some our very favourite smaller companies see their share price fall, because it gives us the unique opportunity to recommend them as a BUY to all our existing and our brand new Members.

For example…

A Cheap Small Oil Stock

The small Thai-based oil producer and explorer we recommended our Members BUY just last month at 76 cents is now trading at around 60 cents. New buyers today can pick up the shares at a 20% discount to the price a month ago.

An Even Cheaper Small Iron Ore Stock

A couple of month’s ago we met with this company’s Chairman and CEO, taking comfort from their vision of building upon and expanding the company’s existing Northern Territory based iron ore business.

They have just shipped their first boatload of high-grade iron ore to Chinese customers. As you probably know, iron ore is currently just about the hottest commodity on the planet at the moment, yet this junior iron ore producer is still only capitalised at less than $200 million.

Back in April, we recommended our Members hold the company when the shares were priced at 93 cents. Today they trade around 77 cents, a 17% discount to their price of just a couple of months ago.

Some Great Big Winners

These are just two small examples of the types of companies we prefer – small, cheap and largely undiscovered.

But simply finding a small, cheap and undiscovered commodity company does not guarantee stock market success. The Australian Stock Exchange is littered with ‘penny dreadful’ companies with dubious management, tenements in inaccessible places, little cash, and almost no hope of long-term share price appreciation.

That’s where we like to think we make a difference. We can get access to the management of many promising smaller resource companies.

We find there’s nothing better than kicking the wheels of a company to establish if it’s the real deal or just another fly-by-night pumped up ‘penny dreadful’.

For example, each of these companies was initially recommended to Members when they were worth less than $30 million. Just look at the stunning gains they’ve racked up since…

Terramin Australia – Up a breathtaking 695% since December 2005!

Platinum Australia – Up an astonishing 622% since November 2005!

(Share prices taken on Monday 16^th June 2008. Gains don’t include dividends.)

Don’t just take our word for it. Wilson Asset Management principal Geoff Wilson was recently quoted in the AFR as saying some “exceptional” opportunities have presented themselves, particularly in the mid-to-small company sector.

“I am more excited about the next 12 months than I have been in the last two or three years.”

We wish you happy and profitable long-term investing.

P.S. More than one respected source has recently suggested the oil price might be headed towards US$200 a barrel. If that happens, the stock prices of some of the small companies above could potentially soon be heading into the stratosphere.