Ruddy Marvellous Investing

Stock Research: Macarthur Coal (MCC)

2008-11-12T19:51:00.000-08:00

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)

2008-11-06T20:19:00.000-08:00

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)

2008-08-27T20:07:00.000-07:00

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)

2008-08-27T19:41:00.000-07:00

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)

2008-08-25T22:41:00.000-07:00

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

2008-08-24T20:27:00.000-07:00

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)

2008-07-23T17:24:00.000-07:00

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

2008-07-22T17:52:00.000-07:00

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!

2008-07-14T23:42:00.000-07:00

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

2008-07-01T16:23:00.000-07:00

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)

2008-06-26T16:48:00.000-07:00

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)

2008-06-24T16:36:00.000-07:00

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

2008-06-24T13:00:00.000-07:00

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

2008-06-18T17:49:00.000-07:00

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.

The Scary Truth About Petrol Prices

2008-06-05T16:37:00.000-07:00

Dear Fellow Market Investor,

We don’t know about you, but we are sick to death of the daily news bulletins leading with stories about high petrol prices.

We are even more sick to death of hearing about the FuelWatch scheme.

Enough.

Please.

Much of it comes down to politics and votes. We are politically agnostic and couldn’t care less whether our views on petrol prices gain or lose us votes. What we passionately do care about is fattening the purses and wallets of our thousands of Members.

In fact, contrary to popular politics, we could easily sit here and cheer for even higher petrol prices, because we are confident our Members will benefit.

That’s because we have long been telling our Members and readers of this email to buy oil companies, because we were (and still are) very confident the long-term price of oil will remain above US$100 a barrel.

We’ve been busy recommending small, medium and large oil companies as BUYS to our thousands of Members. If they’ve followed our advice, by now they could be sitting on some big profits, some possibly made in a very short space of time.

We’ll have more on that a little further down, including one small oil and gas company we think still has been overlooked by the market, despite its share price already having jumped 15% in the last month.

We also name the company whose share price soared an amazing 14% on Monday alone this week after announcing a $776 million deal with global oil and gas giant Shell. It’s a great case study in how our conviction about this company’s future prospects has seen our Members suitably rewarded.

The Scary Truth About Petrol Prices

Here are the real facts and some distinctly non-political home truths about oil and petrol prices.

· Despite what any politician from any party says, FuelWatch will not make petrol cheaper. Lower oil prices will make petrol cheaper. End of debate.

· Most of the world’s cheap oil has already been discovered.

· World demand for oil is high and only going to get higher still in the years and decades ahead. For example, the IEA (International Energy Agency) forecast that China and India will add more than 13 million barrels to daily oil demand by 2030. Longer-term, petrol prices are only going to go up.

· The days of cheap air travel are rapidly coming to an end. Higher oil prices means higher airfares. They also mean less competition. Who in their right mind would launch new a new airline in today’s environment? We predict a very tough time for recent domestic entrant Tiger Airways.

· Many working families are already struggling to cope with higher mortgage payments or higher rent costs. For a nation obsessed with petrol prices, paying $1.65 a litre is a killer blow. But they haven’t seen anything yet. Higher fuel prices are cascading down the food chain – literally. Expect to see the prices of groceries continue to rise, putting yet more pressure on family budgets.

· That in turn will continue to put pressure on domestic inflation. The Reserve Bank of Australia (RBA) kept interest rates on hold this week at 7.25%, but it is getting very worried about rising inflation. We do not envy the RBA Governor Glenn Stevens. If he raises interest rates, he could put large parts of the country’s population effectively in recession. If he doesn’t raise interest rates, he risks seeing higher inflation eat away the country’s prosperity. What’s a Governor to do? Sit on the fence, of course. But as we all know, sitting on a fence for long periods of time ultimately becomes very painful.

· We were talking to a real estate friend of ours on the weekend. He seemed to be spending more time at home recently. He said it was like someone had turned off the tap about 6-8 weeks ago. Sales have completely dried up. It’s no coincidence that the tap was turned off around the same time as interest rate rises and higher petrol prices started to really bite. Expect falling house prices soon – if people really want to sell their houses, the only thing they can do is reduce the price.

Yet whilst all this is going on regarding petrol prices, house prices, inflation and whether Shane Warne will make a comeback to take on the Poms next year, there is a huge part of the Australian economy that continues on its own merry prosperous way.

The Mining Boom Continues Unabated

For anyone connected with it, whether they work directly in it or like us, are investors in it, whichever way you look at it, the mining and resources boom is continuing unabated.

· As we said above, world demand for oil is only going to rise. Global oil consumption currently runs at around 88 million barrels per day. Higher oil prices has crimped some demand, but we’re only talking around the edges.

· Oil exploration companies increasingly have to drill for oil in more and more difficult places. This adds to the cost of exploration and in the event of a discovery, the cost of extraction. Either the price of oil stays high and goes even higher, so that it makes these new discoveries economical for the oil companies, or the oil stays in the ground. Given the increasing demand and the world’s complete reliance on the naturally depleting natural resource called oil, it has to come out of the ground.

· Then there’s gas. The sector is quite literally on fire. Last week we had Santos agreeing to sell part of its Gladstone liquefied natural gas (LNG) project to Malaysia’s Petronas for up to $2.6 billion.

· That in turn prompted Origin to reject BG Group’s $15.50 per share cash offer for the company. Significantly, Origin’s shares actually rose after the BG deal was rejected – normally shares in the target company fall when they reject a takeover. Maybe Origin has something (gas) that the rest of the world increasingly wants, and is increasingly willing to pay a hefty price to secure? Maybe indeed.

· Then we have this week news of Aussie junior gas player Arrow Energy’s $776 million deal with global oil and gas giant Shell. In a media release announcing the deal, Arrow said it “…has the largest coal seam gas (CSG) acreage position in eastern Australia and a growing presence in four Asian countries.” It went on to say “The global demand for LNG is forecast to more than double…by 2015 as developing countries like China and India compete for energy resources with developed states.”

500 Million More People Are Coming To China & India

A couple of week’s ago we printed a table of the population of the world’s three most populous countries. Repetition is the best form of learning, so we make no apologies for re-printing it this week.

1. People's Republic of China 1,323,902,000

2. India 1,133,037,000

3. United States of America 304,117,000

China and India together represent around 37% of the world’s population. No wonder Arrow Energy say they are increasingly going to compete for energy resources.

They are not the only ones saying that. In a presentation last week, Rio Tinto’s Chief Executive Tom Albanese said…

“The unprecedented increase in global urbanised population will be driven by emerging markets.”

“China and India, the largest single contributors, will experience a combined increase of over half a billion people…but growth is global, with a total increase in urbanised population from 2005–25 of 1.4 billion people.”

“Demand growth remains strong and, combined with supply side constraints, this means there has never been a time at which our options for expansion have been so valuable. With world demand for our products set to double by 2022, we have the reserves and resources in place to keep pace with the market.”

The Resources Megatrend Set To Last For Decades Ahead

Regular readers will know we’ve also been saying it too, probably for longer than most. For anyone who’s been listening, we’ve been saying the resources boom is likely to last for years and even decades ahead. We were saying it when few others were saying it. We were saying it when a few more ‘experts’ started catching on.

We’re still saying it now, at a time when the mainstream media have finally cottoned on that this is a resources megatrend, not a resources bubble.

Bubbles go pop.

Megatrends go on for years and decades ahead.

Sure we’ve just had prices of commodities like copper, oil, iron ore, platinum and coal – to name just a few – rising three and fourfold in just the last few years, but we believe that just gets them to roughly the levels simple supply versus demand economics dictate they should be trading at.

That’s now. Looking further ahead, the key drivers of future growth are…

· Increasing demand, as mentioned above.

· The increasing costs of mining and resources companies…

o Higher energy costs

o Higher exploration costs

o Higher extraction costs

o The continued weakening of the US dollar

o The cost of financing

To us, it all adds up to a continuation long into the future of the resources megatrend.

On Fire: The Small Queensland Company That Hit Gas

Arrow Energy is the name of the company we mentioned near the start of this email. As we said above, on Monday this week their shares soared 14% after the announcement of Shell’s huge $776 million investment.

Arrow’s share closed the day on Monday at $3.79. When we first recommended Arrow Energy as a BUY way back in November 2005, the share price was 75 cents and the whole company was worth around $500 million.

Fast forward to today and Arrow Energy is worth over $4 billion.

A $10,000 investment in Arrow at 75 cents would now be worth over $50,000.

Even Members who followed our BUY advice of just 3 weeks ago, when the shares were trading at $3.22, would already be sitting on a very handy gain of 18%.

But that may only be the start. In our BUY report of just 3 weeks ago, we said…

“Australia is ideally situated in proximity to China, and with abundant in-ground gas reserves to service China’s LNG needs.

Arrow Energy has been at the forefront of corporate and development activity in the Queensland energy market over the past couple of years. It remains our preferred CSG play.

With Arrow Energy at the forefront of a growing LNG industry in Queensland, we have never been more comfortable with the stock.”

Shock: World’s Oil & Gas Supplies Are Running Out

Obviously we’re pleased that some of our existing Members will have already benefited from the 18% jump in the share price since we published that report.

But in terms of the long-term picture for Arrow Energy and many other of our preferred mining and resources recommendations, an 18% gain could be just the beginning.

Like Rio Tinto and other major resources companies, Arrow Energy are planning way out into the future. They are looking past 2013, past 2015, and all the way out to 2020 and beyond.

Like us, Arrow Energy are planning on this resources megatrend running for decades ahead.

Remember – resources like oil and gas are naturally depleting. The world is absolutely reliant on them. Can you imagine a world without oil and gas? Maybe it could happen in 150 – 250 years time, after decades of mind boggling sums of investment, but what with the massive challenge of dealing with climate change at the same time, we’re struggling to imagine how the world might adapt and look.

Some BIG Winners

Naturally, we’ll continue tracking the performance of Arrow Energy in the months, years and decades ahead.

That’s one of the many nice things about being a Member. Once we recommend a stock as a buy, we keep following it and keep updating our Members on the latest news.

Like Warren Buffett, we are long-term investors. We like nothing more than to watch the share price of a company we first recommended as a buy a few years ago continue to rise as it increases its profits and/or makes a significant new discovery and/or launches a successful new product.

Arrow Energy is not the only long-term winner (so far) for Members. Just take a look at the performance of these specially selected companies …

Macarthur Coal – UP 1488% since September 2002.

Terramin Australia – UP 698% since December 2005.

QBE Insurance – UP 683% since September 2001.

(All prices taken from Yahoo Finance as at Monday 19^th May 2008 close)

We closely follow the progress of all the companies we recommend as a BUY right up until the day we recommend our Members sell them. Even then we will continue to monitor the performance of the company, always looking for fresh buying opportunities should they arise.

Another of the really nice things about being a Member is that because we follow our BUY recommendations so closely, we often find ourselves re-recommending them as BUYS months or years in the future. That’s exactly what we’ve done with Arrow Energy.

In fact, since that initial BUY recommendation in November 2005, we’ve made the following BUY re-recommendations about Arrow Energy…

Report Date BUY Recommendation Price

December 2005 67 cents

September 2006 65 cents

February 2007 $1.30

May 2008 $3.22

When Next? What Price?

As a reminder, on Monday this week, Arrow Energy shares closed at $3.79.

You could have done even better if you’d first bought Arrow Energy when we re-recommended them as a BUY a full 10 months after our initial BUY recommendation, in September 2006.

The shares traded even lower than 65 cents, their lowest point since our initial recommendation being 52 cents in June 2006.

As recently as January this year, Arrow Energy shares were a paltry $1.49.

The point is that for highly promising companies like Arrow Energy, with what we think are excellent long-term prospects, there are often numerous buying opportunities. And you don’t have to buy the shares just once – as you can see from the above, buying more shares at opportune moments can be an even more profitable investment strategy.

Run Your Profits For Maximum Gains

There is an old stock market saying…

“Run your profits and cut your losses”.

Unfortunately, many investors do the exact opposite.

People hate losing money. We’re no different. But people are often very reluctant to sell their losers because they can’t bear to actually book a loss. They say to themselves “I’ll sell the shares when they get back to the price I paid for them.”

Often that never happens. Shares that have already fallen say 30% can easily fall another 30% or more. In fact, most people conveniently forget shares that have fallen by say 80% or 90% can still fall another 90% from their current price.

For example, you could have bought Allco Finance Group at around $2.20 in January this year, which was 83% below their February 2007 peak of $13.24. Then, just 2 months later, the share price had slumped another 91% to trade at just 20 cents.

We’re pleased to say we never recommended Allco Finance as a BUY.

We like to run our profits. We think Arrow Energy is an excellent example of running your profits. Not only do we not sell out just because the share price has risen, we often re-recommend some of our favourite companies at higher prices, if and when the rewards outweigh the risks.

The Small Oil Company Overlooked By The Market…So Far

Which brings us nicely back to the oil price, and the small oil and gas company we think is still being overlooked by the market, despite its shares already jumping 15% in the last month.

As witnessed by our looooooooooong list of BUY recommendations, this is clearly one of our very favourite small oil companies…

Report Date BUY Recommendation Price

December 2005 98 cents

January 2006 $1.20

October 2006 $1.55

January 2007 $1.22

March 2007 $1.40

July 2007 $1.52

September 2007 $1.40

May 2008 $1.00

Here are some of the things we like about this oil company…

· Their strategy – enhancing production from aging oilfields – lowers the risk profile of the company.

· They have 100% ownership of the second-largest oilfield in Turkey in historical production terms. If they can increase the recovery rate to closer to typical averages, they would have potential access to an additional 45 million barrels of recoverable oil. For a company worth a total of around $90 million, that’s a lot of upside potential!

· The company recently began its first drilling programme on its second major asset, a Western Turkey gas field.

· To date, seven gas discoveries have been made out of seven wells drilled in 2007 and 2008. You can’t get a better strike record than that.

· Then, just last month, the company trebled its project portfolio by acquiring five projects totalling more than 19,000 acres in a prolific hydrocarbon region of central California.

· Unusually for a junior oil company, the company is profitable, has little or no debt, AND is dividend paying, trading on a trailing dividend yield of around 5%.

· Add all this together and it’s not surprising we’ve recommend the company as a BUY a full 8 times. We concluded one of our most recent reports about the company by saying it “…remains one of the most undervalued plays in the Australian oil sector.”

Today the company’s shares trade at around $1.16, meaning they trade below the price we were happy to recommend them as a BUY on 6 previous occasions. In our view, that still leaves plenty of upside for new investor’s a today’s price.

On top of that, we continue to remain very positive about the long-term oil price. It may not feel good at the petrol bowser, but we think it’s a good thing when you consider it from an investment in small, promising, undiscovered oil companies. Only the future will tell.

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 the small company mentioned above plus all our other oil companies could potentially soon be heading into the stratosphere.

P.P.S. Remember the other small Thai oil company we highlighted just a few weeks ago, the company that is our best ever recommendation? We recently said we think the best days for this company could still be ahead of it. The share price has dropped back from a recent peak of 80 cents to around 69 cents, a fall of 14%. In our most recent report on the company, we recommended it as a BUY at 76 cents. Nothing has changed since then, except the share price!

Two Oil Stocks Who Have Missed The Party

2008-05-26T21:28:00.000-07:00

Since mid March, the All Ordinaries Index has jumped an impressive 17%. We hope you’ve been along for the ride.

Resource stocks continue to lead the way…oil hits new record highs, gold hits US$900 an ounce again, and other key commodities also hit record highs.

Amidst the resource euphoria, we highlight two oil companies who’ve missed the party to date, plus two gold companies set to benefit from the rising oil price.

Dear Hot Stock Market Investor,

The stock market is hot again.

Or perhaps we should say the resources stock market is hot again. As Charlie Aitken of Southern Cross Equities was quoted in Monday’s Australian Financial Review (AFR) as saying “There’s a resources market and then there’s a market for industrials.”

We say buy selected energy stocks, particularly oil stocks, and buy selected resource stocks, particularly gold stocks.

But we’ve been saying that for a long time now. If you haven’t bought any resource stocks, you might be getting bored with our message by now.

But if you have bought resource stocks, you’d have been enjoying the stellar run many of these companies have had particularly over the last few weeks.

As you’ll see a little further down, we maintain our view that we are still in the early stages of this resources boom. The demand from China now and India in the not too distant future simply cannot be ignored. A simple look at the population of the world’s three most populous nations tells a story in itself.

1. People's Republic of China 1,323,902,000

2. India 1,133,037,000

3. United States of America 304,117,000

By comparison to China and India, the USA looks tiny.

In fact, if you add together the populations of USA, Russia, Japan, Germany, France, UK and Italy, you get to just over half the Chinese population.

If you added Australia’s entire population to that of China, the Chinese population would move from 1.3 billion to err… 1.3 billion.

China alone represents 20% of the world’s population. We think you get the point.

Putting all that into an investing equation, we get…

China + India + Urbanisation x 2.5 billion people = 1 Big Resources Boom

BHP Up, Oil Up, Gold Up, Resources Up

Last week, BHP Billiton hit an all time high of above $50.

On Friday in New York oil rose to US$127 a barrel for the first time ever.

Gold, the somewhat forgotten resource in the light of the ever-soaring oil price, broke through US$900 an ounce again.

As reported in the AFR this week, in addition to oil, last week global steel prices, iron ore, coking coal and thermal coal all moved to record highs, with copper being just off its record high.

Since its March 18^th 2008 low point, the All Ordinaries Index has jumped a remarkable 17%. Even more impressively, BHP Billiton has soared around 40% over the same period. The strong Aussie stock market has been mostly about BHP Billiton.

But then regular readers of this email shouldn’t be too surprised about that. Not only have we regularly been telling you that the resources boom is here to stay, we’ve also been regularly telling you about our enthusiasm for BHP Billiton.

The One Stock You Should Have Bought

It all started a year ago almost to the day when our email titled “The One Stock To Buy Today” recommended investors buy BHP Billiton. Back then, the share price was around $31. Today it flirts with the $50 mark.

If BHP Billiton was in fact the only share in your portfolio, in a 12 month period during which we’ve witnessed almost unprecedented global stock market uncertainty, volatility, corrections, panic and fear, you’d be up around 60%! In the same time period, the All Ordinaries Index is down around 6%.

BHP Billiton is one of those rare stocks that remains cheap even as its share price soars. Such companies are absolute gems, worth their weight in gold, or iron ore, or copper, or uranium, coal, lead, gas, oil…

We are constantly looking for such companies to recommend as BUYS to our thousands of Members. If you pick the right ones, like our best ever recommendation, as you’ll see a little further down, they can seriously be wealth-changing events.

BHP’s performance is also rare in that 12 months ago it was already a huge company, and huge companies usually don’t see their share prices soar 60% in a year. That sort of performance is usually reserved for the smaller end of the market.

Which reminds us…although we’re ecstatic at the performance of BHP Billiton over the past 12 months, we usually concentrate on smaller companies.

Small Resource Companies Set To Join The Share Price Party

And right now, many smaller resource companies have missed some of the BHP Billiton-type share price party over the past 12 months. But that is changing.

Over the last couple of weeks we’ve highlighted the recent share price jumps of several stocks. As a reminder, take a look at the share prices of the 3 oil stocks we highlighted last week, updated to reflect another week of gains…

April 2008 Low Price Today Change

Small US producer/explorer $0.29 $0.49 UP 69%

Mid sized Thai producer/explorer $0.46 $0.76 UP 64%

Mid sized WA explorer/producer $1.54 $2.17 UP 41%

Yet looked at over the past 12 months, a period in which the oil price has pretty much doubled, and versus their all time share price highs, the story is a little different…

May 23^rd 2007 Price Today All Time High

Small US producer/explorer $0.41 $0.49 $0.89

Mid sized Thai producer/explorer $0.13 $0.76 $0.80

Mid sized WA explorer/producer $1.64 $2.17 $3.26

At the risk of boring you with share price tables, compare and contrast today’s share price with the initial BUY recommendation price and to that of BHP Billiton’s 60% share price rise in the last 12 months…

FP Initial Rec Price Today Change

Small US producer/explorer $0.57 $0.49 DOWN 16%

Mid sized Thai producer/explorer $0.054 $0.76 UP 1298%

Mid sized WA explorer/producer $2.72 $2.17 DOWN 20%

(All prices taken from Yahoo Finance as at Monday 19^th May 2008 close)

One company obviously stands out – the mid-sized Thai oil producer and explorer is our best ever recommendation.

We mentioned above about how we are constantly searching for those gems of stock market companies that continue to look cheap even when the share price is soaring higher.

Our mid-sized Thai oil play is a perfect example of the nice things that can happen to your portfolio when all the stars line up perfectly.

We first recommended the stock as a BUY back in February 2006. At the time, the share price was a lowly 5.4 cents and the total company was worth just $17 million.

Fast forward to today, and the shares now trade at 75.5 cents. Members who bought at 5.4 cents would now be sitting on a massive gain of 1298%.

To put that into perspective, an investment of $20,000 made in February 2006 at a share price of 5.4 cents would now be worth a quite unbelievable $279,629.63.

For those people who might be thinking they’ve missed the boat on this particular oil company, we urge them to think again. Just to underline our confidence in the company, we think the best days for this company could still be ahead of it.

In fact, so confident were we in their future prospects, just last week we reiterated our BUY recommendation for the stock. The good news for new investors is that the shares still trade around the same level as last week…but given the surging oil price and that news of their latest drilling programmes is soon due, the shares may not last long at this price.

There Is Still Great Hope For These Two Oil Party Poopers

By contrast, you could say the share price performance of the other two oil companies highlighted above has been disappointing. Certainly, Members who bought at the price we initially recommended the shares will likely be disappointed to date as they are currently sitting on losses.

On the positive side…

· If we considered those two particular underperforming oil companies a BUY when their share prices were above today’s prices, AND…

· in the meantime the oil price has soared to over US$125 a barrel, AND…

· the companies have largely been progressing as we expected…

you would have to assume investors who bought the shares at today’s prices would still have excellent upside potential.

Now we’re not saying these two companies are going to make the almost 1300% gains of our Thai oil recommendation, but they certainly have the potential for significant appreciation from here, especially with the oil price high and possibly headed even higher.

The Oil Price Hits Yet Another Record High

On that note, the oil price continues to almost defy gravity, trading steadfastly above US$120 a barrel, and closing Monday this week at yet another record high above US$127 a barrel.

At the start of 2007, we re-iterated the view that we have held since 2001; that is, that the price of crude oil would reach US$100 a barrel. At that time oil was around US$60 and mainstream opinion was for a return to prices below US$50.

These views were scoffed at by other 'market experts' on numerous occasions. Investment banks for instance were still using US$30 oil prices in their valuation models a year or so ago.

And it seems they have still not caught up with the game completely. We noted a month ago that many energy companies continue to trade at compelling multiples. We said in our view, the share prices of quality energy stocks will undergo a re-rating over the next 12 months, and play catch up once it becomes completely apparent that oil's Membership of the US$100 club is for keeps.

Well, as we’ve seen from the share prices of the companies highlighted above, it seems like that re-rating has already begun. Yet since then, not only has the oil price jumped another 14%, but we’ve had…

· Goldman Sachs Group raising its oil price forecast for the second half of 2008 to US$141 a barrel. (as an aside, we wonder why they predict US$141 rather than US$140? If anyone from Goldman can enlighten us, that would be appreciated.)

· Goldman Sachs analyst Arjun Murti recently warned people to expect US$150 to US$200 a barrel oil prices over the next 10 years. And that’s all despite oil having already increased twelvefold in price over the past decade.

· Saudi Arabia announced it would lift daily oil production by 300,000 barrels a day. Given world demand for oil is around 87 million barrels a day, this is a proverbial drop in the ocean. Not surprisingly, the oil price barely budged – in fact it ticked a little higher.

Call us simple folks, but adding it all up, we can’t help but think oil stocks and energy stocks in general have still got much further to run.

Gold Jumps Above US$900 An Ounce Again

But what about gold? It was all the rage back in March when it burst through the US$1000 an ounce mark, peaking at US$1032.70.

Since then, the price of gold has been at the whim of profit-takers, US dollar true-believers and sceptics, who believe that the precious metal’s dream-run is coming to an end, because of the metal’s recent correction from the US$1,000 per ounce level.

We have been at pains to point out to our Members that no strongly performing commodity, even gold, will continue to go up in a straight line. We view the current pull-back in the gold price as nothing more than a correction that is part-and-parcel of a strong underlying uptrend.

From a charting perspective, while several months of consolidation and base building are now likely, we believe that longer-term upward momentum will resume in due course, with new highs beyond US$1032.70 achievable in time.

Gold Is Still Way Below Its Inflation Adjusted High

Bear in mind that gold’s previous high of US$850 per ounce in 1980 represents at least US$2,200 per ounce in today’s inflation-adjusted terms, so whilst gold’s rise from US$250 lows just a few years ago may seem significant (and it is), we believe there is a lot more upside to come.

As we have discussed in the past, a key element of gold’s value is the metal’s function as a hedge against inflation. Increasing the supply of paper money is a simple matter for those central bankers who control the printing presses – crank ‘em up baby, just as Messrs Bernanke and Bush have been doing in the US.

Sourcing additional supplies of gold on the other hand is a challenging and expensive process.

To emphasise the point, total world gold production dropped by 1% last year. Between 1999 and 2006, there have been a grand total of only 24 one-million plus ounce gold discoveries. This compares with 23 in 1996 to 1998, and a further 128 from 1985 to 1995. No wonder the price of gold is near record highs, and we think is headed significantly higher.

In summary, we believe that the recent sell-off experienced by gold stocks across the sector presents a real buying opportunity.

One Gold Stock To Buy Today

Just last week we told our Members that the current weakness in the gold price, presented another exceptional buying opportunity for this large gold stock.

As an unhedged producer with a growing production profile and formidable resource base, we think this gold company offers excellent exposure to our view of continued gold price strength. Accordingly, last week we recommended the stock as a BUY to our Members at around $2.96.

Another Gold Stock To Buy Today

The share price performance of this small gold stock has been disappointing this year. However, the stock’s weak performance in our view doesn’t reconcile with the company’s development and future prospects.

Their key gold project is on schedule with its first gold poured just last week, instantly turning them into a gold producer with a highly prospective asset base.

Despite this, we did not consider it prudent to act on our favourable view while downward momentum remained firmly entrenched in the stock price. As such, we have been monitoring the company’s price action with a view to increasing our exposure once a suitable opportunity arises.

Just last week we upgraded the company as a BUY at around $1.10. This is a speculative and high risk stock, suitable for investors comfortable with a large degree of volatility. Nevertheless, in return for this high risk and volatility, we think the stock just might also offer exceptional returns.

We wish you happy and profitable long-term investing.

P.S. Gold bullion site Kitco said on Friday when talking about the gold price versus the oil price…"I don't see oil coming down, at least not sharply…So this suggests to me gold is undervalued relative to oil and that the adjustment is more likely to come through a rise in gold prices and not a decline in the oil price." These comments support our view of a rising gold price and a consistently high oil price.

P.P.P.S. As reported in the AFR last week, a paper by research group Bank Credit Analyst said that using the past 200 years as a guide, price rises for growth-sensitive industrial commodities could still have a long way to go. The paper effectively says the commodity price strength over the past 5 years has merely returned them to their long-term trend. It sounds to us like they agree with us – the resources boom is set to run for years and even decades ahead.

How You Can Beat Rising Petrol Prices

2008-05-15T17:08:00.001-07:00

Budget shock: Labor takes from the rich to give to the poor. Liberal voters unhappy. Working families rejoice. Stock market doesn’t care. Read our poem.

The oil price continues to surge higher, with more than one respected source suggesting it might be headed towards US$200 a barrel. If that happens, the stock prices of some of the companies mentioned below could soon be heading into the stratosphere.

There is a downside however – predictions are that it will soon cost almost $100 to fill your car with petrol. We have a hot tip to help you deal with the problem.

Dear Fellow Stock Market Investor,

Everyone else is doing a Budget Special this week, and we’re no exception. As you’ll see below, the only difference is that ours is a little more brief and to the point.

Whilst the budget is big news, as far as stock market investing is concerned, we think it will have little or no impact. In fact, in a rare moment of creativity, we’ve come up with a little rhyme to mark the first Labor budget for 12 years. We hope you like it…

Governments come and go,

Budgets are full of woe,

Policies ebb and flow,

But the stock market should not slow.

We have more on the budget below, but first, back to stock market news.

The oil price continues to hit all-time highs, crossing US$126 a barrel in New York last Friday.

Petrol prices are set to rise even further. With the national average already at a lofty $1.46 a litre, Commsec equities economist Savanth Sebastian has said petrol prices could soon hit $1.65 a litre.

At that level it would cost $99 to fill an average car with a 60 litre fuel tank.

If you think that’s bad, Mr Sebastian also warned it was only the beginning of an upward march.

Welcome to the brave new world of scarce oil and therefore permanently higher petrol prices.

Scary as it is – almost $100 to fill up the car – our theory is that if you can’t beat them, join them. Buy shares in oil companies.

A little further down we highlight 5 of our very favourite small oil producers/explorers. But first, a word on oil.

Why The World Must Discover More Oil

The facts are relatively simple…

· Most of the world’s cheap oil has already been discovered.

To ram home the point, the huge “Tupi” oil field offshore Brazil is estimated to contain some 8 billion barrels of oil. Nevertheless, global oil consumption currently runs at around 88 million barrels per day. As such, although Tupi is one of the largest modern oil discoveries, the field is only sufficient to meet less than 100 days of global demand!

Oil Could Jump To US$200 A Barrel

It’s a little hard to remember now amidst all the oil price excitement, but back in early 2007, when we forecast oil would reach US$100 a barrel, oil was around US$60 a barrel. At the same time, mainstream opinion was for a return to prices below US$50 a barrel.

How things can change. Fast forward a little more than a year and we’ve now got major investment bank Goldman Sachs warning people to expect US$150 to US$200 a barrel oil prices over the next 10 years. And that’s all despite oil having already increased twelvefold in price over the past decade.

As reported this week in The Australian Financial Review (AFR), the president of OPEC Chakib Khelil recently said in Washington that oil at US$200 was possible “if we have a continuing devaluation of the US dollar with respect to other currencies.”

Putting this all together, we retain our view on the long term appreciation of oil due to shortening supply and growing demand. In the near term however, there is a risk that prices have moved too far too fast. As such, we consider a period of consolidation and perhaps even a correction in the oil price is likely.

The Stock Market Is Finally Waking Up To These Cheap Oil Companies

In our view, triple-digit oil prices are here to stay. And based on the recent price movements of some of our favourite small to medium sized oil companies, it appears like the market is finally waking up to this new dawn…

April 2008 Low Price Today Change

Small US producer/explorer $0.29 $0.485 UP 67%

Mid sized Thai producer/explorer $0.46 $0.755 UP 64%

Mid sized WA explorer/producer $1.54 $2.00 UP 30%

(All prices taken from Yahoo Finance as at Monday 12^th May 2008 close)

Just this week, the small US producer/explorer mentioned above made an announcement saying “…we fully expect production levels at the field to reach record highs within the next few weeks, coinciding with record world oil prices…by more than doubling our production rates in the coming weeks we expect a material increase in our monthly sales revenues.”

The mid-sized WA explorer/producer mentioned above is in the middle of a $60 million drilling programme in 2008 pursuing a portfolio of moderate risk, high impact opportunities.

As part of that programme, this month the results of a potentially “game changer” exploration well are due to be released to the market. The company says the drilling result has the potential to see the company’s oil and gas reserves increase by a massive 250%.

If they do strike gas in a big way, we’d imagine the shares could take off. The high impact exploration well is drilling as we speak, with results due at the end of May.

The Harsh Reality Of Investing In Small Resource Stocks

Yet not all small and medium oil production and exploration companies have joined in the fun…yet.

When it comes to recommending shares for our many Members to BUY with their own hard-earned cash, as you can imagine, we are very discerning.

In short, we know what we’re doing. We are often seen on Bloomberg, CNBC, Sky News and ABC television giving expert advice on the stock market. We are regularly quoted in the Australian Financial Review and other national newspapers. When the financial media want an independent opinion, they talk to us.

The harsh reality is that there are literally hundreds of small mining and resources stocks quoted on the Australian Stock Exchange which will never ever make a profit. We’re not interested in these “penny dreadful” stocks complete with dubious management and highly speculative exploration acreage.

With that in mind, when we recommend our Members BUY a stock, you can be sure we’ve done our homework. As well as feeling comfortable about management’s credentials, integrity and past successes, we often meet and speak to them. On occasions we’ve even been out to places like Namibia to actually see for ourselves the company’s acreage and operations.

Of course, nothing is guaranteed in the world of stock market investing. Although we’d love it if every stock we recommended to our Members went up, in reality that is simply impossible. Instead, we concentrate on recommending stocks where the odds of success are stacked in our favour, be that the company has a compelling valuation and/or is sitting on highly prospective acreage.

You Might Be Able To Pick Up This Oil Explorer On The Cheap

As we mentioned above, not all of our specially selected small and medium oil production and exploration companies have joined in the recent share price fun.

Take the mid-sized oil exploration company we’ve previously highlighted here about whom we recently said “…is sure to generate exploration excitement.”

The potential oil resource in place in the area they are drilling is estimated to lie somewhere between 6 million and 40 million barrels, with mean oil resources estimated at 20 million barrels.

We first recommended this exciting oil explorer as a BUY in January last year when the shares were $1.64. We re-recommended them as a BUY in January this year at around the same price, despite the company making excellent progress over the intervening 12 months.

Fast forward to today, and largely courtesy of the sub-prime fall out, the shares currently trade around the $1.05 mark. That is 36% down on the price we were happy to recommend them as a BUY just a few months ago. It just might turn out to be an excellent opportunity for new investors to buy shares in this company on the cheap.

With $48 million in cash and receivables, all in all, we think this company adds up to an excellent medium-high risk/high reward oil explorer.

The Great Budget Winners & Losers

By the time you read this, Wayne Swan’s first budget will have been dissected to death. We’re happy to leave the midnight candle burning to the political experts.

Instead, as promised, here’s our very brief summary of the winners and losers…

The Budget Winners

Ordinary working families.

The Budget Losers

Wealthier people.

It’s classic Labor – take from the rich to give to the poor. The only shock is that after more than a decade of Liberal government, we could be all forgiven for forgetting what a Labor party budget looks like. Now we know again.

We’re politically agnostic. Sure some sectors and some companies benefit more under a Labor government compared to a Liberal government, but we’re not in the game of second guessing politicians in order to generate stock market returns for our thousands of Members. There are far better ways of doing that, commonly known as the “keep it simple” strategy to stock market investing.

Politics is not called politics for nothing. The first post-election budget of any government is not about winning votes. Liberal voters aren’t going to suddenly turn into Labor voters after this budget, and that’s absolutely fine with Kevin Rudd. You can’t take away something you never had in the first place.

Anyway, post-budget, life will go on largely as usual for the vast majority of the Australian population. Working families will still struggle to pay their mortgage. Wealthier people will carry on buying luxury cars and plasma TVs, even if they are slightly worse off from this budget.

Forget The New Mercedes – Watch The Stock Market Instead

In fact, we’d argue that wealthier people are far more likely to be affected by the machinations of the stock market than by paying a little bit more for their next Lexus or Mercedes.

The Australian stock market has recently gone through a period of almost unprecedented growth. As a reminder, take a look at the returns of the All Ordinaries Index over the past 5 years…

· 2007 – UP 14%

· 2006 – UP 20%

· 2005 – UP 16%

· 2004 – UP 23%

· 2003 – UP 11%

Courtesy of the stock market, many people have seen their wealth increase substantially. Their superannuation funds will also have benefited greatly. Up until late last year, the feel good factor for stock market investors would rarely have felt better.

As feel good factors tend to do, all this prosperity created a culture of complacency and comfort. Many people thought the stock market would continue to generate double digit percentage gains year in year out. As a result, the future value of their super funds looked very rosy. Some even contemplated early retirement.

How Margin Loans Ruined The Feel Good Factor

The booming stock market also created a culture of greed. Rich people, ordinary people and highly paid company directors borrowed money in order to further juice their stock market returns. Against the backdrop of this constantly rising stock market, these margin loans were seen by many as being a no-brainer.

You could borrow money at 8%, buy a basket of high-yielding blue chip stocks, use the dividends to pay the loan interest, and sit back and enjoy the strong capital gains. Feeling good…

But as we’ve seen in the first few months of 2008, the stock market can fall as well as rise. High yielding blue chip shares can fall further than you could ever have thought. Take a look at just how far the shares of these popular companies have fallen from their 2007 peak to today…

2007 Peak Today Change

A.B.C. Learning $8.45 $1.28 DOWN 85%

Allco Finance $13.24 $0.56 DOWN 96%

Centro Properties Group $10.06 $0.385 DOWN 96%

(All prices taken from Yahoo Finance as at Monday 12^th May 2008 close)

It all goes to serve some very valuable investing lessons. The three companies above were all heavily indebted. Excessive debt, especially when used to pay top dollar for acquisitions, can be evil.

We successfully avoided the three companies mentioned above. In fact, we’ve been recommending our Members avoid the banking and finance sector for some time now. Notwithstanding the excitement to banking shares caused by this week’s Westpac bid for St George, we’ve been vindicated in our decision.

Instead, we’ve steadfastly stuck to our proprietary stock picking formula which has served us rather well in the 7+ years of our existence, and have stuck to our outstandingly positive view on resources and resource stocks.

Although we like to think our past track record of BUY recommendations is very impressive, here’s a story about one booming resource stock we missed…

The Story Of The Fortescue Billionaire

There was a fascinating story in the AFR last week about how the decidedly low profile Kie Chie Wong of southern Sydney has turned an initial outlay of less than $1 million into $1.2 billion in the space of just 5 years.

They say money makes money, but $1.2 billion is an absolutely enormous amount of money. It is so much money that it is virtually impossible to comprehend.

$1 million is a lot of money.

$5 million would mean you not having any money worries for the rest of your life.

$10 million is about the level you might start thinking about fast cars and fast boats.

$25 million might make you think about properties in exclusive addresses in Australia and abroad.

By $50 million you’d probably look towards philanthropy and the odd Rembrandt and Picasso for the sitting room.

At $100 million you’d seriously be struggling to know what to do with all your money – or so we imagine. (If anyone reading this out there is worth over $100 million, please reply to this email telling us what you do with all your money.)

And He Still Drives A Honda Car…

Stating the obvious, Mr Wong’s $1.2 billion is 12 times more than $100 million. If he lost $200 million, he’d still be worth $1 billion. It truly is impossible to comprehend for mortals such as ourselves, and to be fair, is probably difficult for Mr Wong to comprehend himself – according to the AFR article, he drives a Honda car and lives in a “pleasant but unspectacular brick home.”

How did Mr Wong do it? In 2003, a private family company amassed a stake in Fortescue at split adjust prices of between 1 cent and 3 cents a share. Today the shares trade at around $9.30 and the whole company is worth over a stagging $23 billion.

Andrew Forrest, the founder and major shareholder of Fortescue, is today Australia’s richest person, worth over $9 billion. We don’t think he’ll be too put out if he has to pay a little bit more for his next luxury car.

To us, the most impressive thing about Mr Wong’s new found uber-wealth is that he has held his Fortescue shares all the way through to now. We don’t know about you, but we’d be feeling a little nervous having such a large proportion of our wealth tied up in the fortunes of just one company, and one that has yet to turn a dollar of revenue.

It puts to shame most people’s version of and portfolio diversification. Mr Wong’s hugely successful investment in Fortescue is well deserved. Sure, there was a bit of luck involved – in 2003 the mining boom was something associated with the Poseidon bubble way back in 1970. Today Fortescue’s iron ore resource is in high demand from China.

Three Important Investing Lessons

To ordinary stock market investors such as ourselves, the story of Mr Wong’s rise to the billionaire’s ranks teaches us 3 important investing lessons…

1. When you have a high conviction share idea, you should buy a meaningful amount of shares in that company.

2. Run your winners. Many people make the mistake of cutting their winners and running their losers. If you’ve found a great and growing company whose future prospects are not reflected in its share price, regardless of the price you initially paid for the shares, why would you want to sell it?

3. If you have a high tolerance for risk and can sleep well at night, having a concentrated portfolio can be good for your wealth.

Our Best Ever BUY Recommendation Continues To Fly Higher

Our goal here is to create wealth for our thousands of Members. We try to do that by recommending our Members BUY high quality companies when they are trading at compelling valuations.

Like Warren Buffett, our favourite holding period is forever. We like to run our winners and cut our losers. When we like a company, we are not afraid of re-recommending it as a BUY at prices much higher than our original recommendation.

For example, take the small oil company we featured last week that is already our best ever recommendation.

We first recommended the stock as a BUY to our Members back in February 2006. At the time, the share price was a lowly 5.4 cents and the total company was worth just $17 million.

For those of you not lucky enough to have bought at 5.4 cents, or at other share prices significantly below the 55 cents the shares traded at 3 weeks ago, you might be thinking you’ve missed the boat.

But rather than thinking investors have missed the boat, we think the best days for this company could still be ahead of it. In fact, so confident were we in this company’s future prospects, we recently upgraded the stock to a BUY.

Fast forward to today, and on Monday this week, the shares closed up another 6% on the day, and now trade at 75.5 cents. That’s an impressive 37% jump in just the last 3 weeks alone.

But far more impressive is the massive almost 1300% gain any Members who bought at 5.4 cents would now be sitting on.

If they’d followed our investing philosophy of running their winners, and like Mr Wong, weren’t afraid of having a large amount of money invested in one company…

How You Could Have Turned $20,000 Into Almost $280,000

An investment of $20,000 made in February 2006 at a share price of 5.4 cents would now be worth a quite unbelievable $279,629.63.

Now not every share we recommend to our Members will perform as well as this small oil company. Some will fall in value – after all, we’re only human, and mistakes can and will happen.

But, we hope it gives you an idea of what’s possible by investing in the stockmarket, and by following our investing philosophy.

With the share prices of some of our specially selected small resource companies running hot, we urge you to act now in order to access our current recommended stocks.

We wish you happy and profitable long-term investing.

P.S. Perpetual portfolio manager James Bruce was quoted just last week in the AFR as saying…“Right now, I think this is the best stock picker’s market in resources that we’ve seen for quite some time.” We couldn’t agree more, and we’re quietly confident our specially selected portfolio of small resources stocks could be soon set to rocket.

P.P.S. Are you worried the resources boom is about to end? We aren’t. Although there is a tremendous amount of investment being thrown at the commodity supply side, it will take a long time for output to rise. The demand we have seen coming from China and India is a long term trend which we anticipate will keep upward pressure on demand for commodities and prices for decades to come.

Resource Stocks Are Hot Again

2008-05-11T14:41:00.000-07:00

Resource stocks are suddenly hot again, seemingly catching many people by surprise. But as regular readers will know, we’ve long been resource bulls, so no surprises here.

As you’ll see below, some of our very favourite small resource stocks have jumped sharply higher in a matter of days. Yet, they are still off their all time highs, leaving room for potentially even more quick gains.

Oh, and by the way, oil hit a new record over US$120 a barrel …

Dear Resourceful Stock Market Investor,

We’d like to start this week’s email with news of 4 significant events…

Significant Event #1 - OIL

Oil closed Monday at a new record high of over US$120 a barrel.

Significant Event #2 - GOLD

Gold jumped US$16 on Monday to US$874 an ounce, coming on top of the US$7 an ounce it added on Friday last week.

Significant Event #3 – OUT OF THE WOODS

Last week, the Australian Financial Review quoted EL&C Baillieu Stockbroking director Richard Morrow as saying “I think we’re out of the woods. Investors have lost the panic factor. Knee-jerk sales are stopping and people are looking for good return on investment ideas, especially in the safe sectors of the market such as mining, energy and infrastructure.”

Significant Event #4 – HUGE TAKEOVER

British energy giant BG Group (otherwise known as British Gas) last week bid a massive $13 billion for Origin Energy in what would be Australia’s third biggest takeover ever. Not surprisingly, Origin shares jumped 33%. Also not surprisingly, the share prices of many other energy companies also jumped, and have continued their journey higher in the ensuing days.

Hot Resource Stocks

Resource stocks are hot again. Just take a look at the share price movements of some of these selected shares on just one day last week, Thursday May 1^st 2008, and the movement from their 2008 share price lows…

Thursday From 2008 Low

Queensland Coal Seam Gas Player +19% +104%

Small Oil Producer/Explorer +14% +38%

Tiny South Australian Mineral Explorer+13% +46%

Bargain Priced Junior Copper Explorer +9% +55%

Specialist Mt Isa Copper Producer +9% +59%

(All prices taken from Yahoo Finance as at Monday 6^th May 2008 close)

As you’ve probably guessed by now, all the companies highlighted above are companies we’ve previously highlighted as BUYS to our thousands of Members.

Obviously we don’t get every recommendation right, and the above companies are just a small selection of the over 100 stocks currently in our Reports.

But we think the table above succinctly highlights 2 pertinent investing points…

1. Share prices can move very quickly. Selling out to buy back in at a better price or sitting on the sidelines waiting for a better price can be expensive strategies.

2. If you had the skill, guts and luck to buy small resource stocks at or close to their low point in 2008, you could already be sitting on very substantial profits…but only if you bought the right stocks!

Best Stock Picker’s Market In Resources

Perpetual portfolio manager James Bruce was quoted in last week’s AFR as saying…

“Right now, I think this is the best stock picker’s market in resources that we’ve seen for quite some time.”

He also was quoted as saying…

“There are some outstanding opportunities in resources at the moment, but there are clearly some things that are overpriced as well.”

Although the share prices of all 5 companies mentioned above have jumped significantly, especially from their low points of 2008, they still remain below their all time highs.

Even after the recent share price excitement, given our long-term positive outlook for resource stocks, we still confidently think the best days for these 5 stocks may still be ahead of us.

The Resources Bandwagon Keeps On Rolling

As regular readers of this email will already know, we’ve been very keen on resources stocks for a long time now. We are not jumping on the resources bandwagon just because the share prices of selected resources stocks are rising.

Our exposure to natural resources remains steadfastly positive. The demand we have seen coming from China and India is a long term trend which we anticipate will keep upward pressure on demand for commodities and prices.

On top of that, as long as the world continues to be awash in US dollars, courtesy of the Federal Reserve’s interest rate slashing programme, we believe that demand for commodities (which are priced in dollars) can only continue.

In addition, although there is a tremendous amount of investment being thrown at the commodity supply side, it will take a long time for output to rise. There has been significant underinvestment in new mines, agriculture, energy and exploration for much of the past two decades which were characterised by low commodity prices and low investment.

But all that is changing.

Buffett May Be Wrong, But He’s Betting On A Rising Market

But what about the credit crunch?

But what about the US economy?

But what about the US sub-prime crisis?

But what about Australian interest rates?

But what about rising Australian inflation?

Is there a resources bubble?

Where to from here for the stock market?

If we knew the answer to all those questions, we’d be millionaires by now.

Even the great Warren Buffett, worth a cool US$60 odd billion, doesn’t know the answer to all those questions. Whilst on the one hand he thinks the US recession will last longer than many people think, he fully admits to being no expert when it comes to predicting the economy.

In other words, Buffett may be wrong.

But then again, Buffett firmly remains confident about the long-term prospects of the stock market. So confident in fact, that his company Berkshire Hathaway has a whopping US$6.2 billion potential liability should the US and three other stock markets under-perform over the long-term.

Buffett has been selling long-term equity put options on four major stock indices. These contracts come due between 2019 and 2028. Without getting into too much detail, basically Buffett books a profit of US$4.9 billion if these indices are higher than they were when he entered into the contract.

Here’s the really interesting part of the deal from Buffett and Berkshire Hathaway’s perspective – the company has already received the US$4.9 billion, money the company is free to invest today.

Shock: Buffett No Investing Mug

If the markets finish higher, Buffett and Berkshire keeps the whole US$4.9 billion. If they are lower, they will have to pay out billions, possibly even more than their current US$6.2 billion potential liability.

We fancy Berkshire Hathaway’s odds of a big gain. Buffett is no mug. He knows over the long-term markets rise. As Berkshire itself said this weekend…

“We believe that these contracts will prove profitable over the 15-20 year periods they cover, even if we exclude the investment income we can expect to earn on the $4.9 billion that we hold.”

Our Top Ten Stock Market Investing Tips

So, what does this all mean to mere mortals such as ourselves, ordinary people who can’t quite rustle together the odd US$5 billion to bet that the market rises in the next 15-20 years?

We defer, as usual, to our top ten stock market investing tips…

1. Buy the right shares.

2. Buy the right shares at the right time.

3. Buy the right shares at the right price.

4. Invest with a long-term perspective.

5. Accept that losses are part of stock market investing.

6. Don’t panic when all about are acting like propeller heads.

7. Buy shares when others are fearful.

8. Sell shares when others are greedy.

9. Sell the right shares at the right time.

10. Sell the right shares at the right price.

Picking the right shares is the obvious first step to making your stockmarket riches.

We have devised a proprietary stock picking formula which has served us rather well in the 7+ years of our existence.

· We search for value.

o We don’t just search for cheap companies. As we said previously, we search for cheap companies with excellent management, outstanding assets and sustainable competitive advantages.

· We identify companies that are able to out-perform.

o These are often found in smaller companies. Smaller companies are generally over-looked and under-researched, allowing us to find companies with outstanding prospects, yet valued at a fraction of the price of larger companies.

· We search out unloved companies and sectors.

o We don’t follow the crowd. When others see doom and gloom, we search for opportunities, especially in the previously bombed-out but now hot again small company resources sector.

· We are investors, not traders.

o We look at the company and not the share price. Over the medium to long-term, if we identify the right companies at the right price, the share price will eventually track the underlying progress of the company, and our Members will hopefully be well rewarded.

Alcopops Up, Resources Up, Share Prices Down. Huh?

We’ve mentioned before about the fundamental disconnect between the performance of resources share prices compared to the record commodity prices.

The recent share price gains have gone some way to correcting that disconnect, but with the oil price at US$120 a barrel, and not every company’s share price running hot, we believe the disconnect still exists, and it still offers patient, rational, long-term investors tremendous buying opportunities.

Unlike alcopops…

Federal taxes on pre-mixed alcoholic drinks – alcopops – were recently increased without warning by 70% under a Rudd Government plan to tackle binge-drinking particularly among teenagers.

A visit to the local liquor store confirms the massive price rise. The price of alcopops have jumped significantly higher. As to whether this measure will curb teenage binge drinking, we somehow doubt it. If alcopops are now too expensive, we’re confident the crafty teenagers will find other, cheaper drinks, to quench their thirst.

As an aside, why doesn’t Nanny Rudd raise the taxes on cigarettes by 70% to tackle binge smoking? Could it have anything to do with more smokers being of voting age than the majority of alcopop drinking teenagers? Just a thought.

The point is that when the taxes on alcopops were increased by 70%, in response the price of the drinks also rose, instantly.

But it’s not happening like that with commodity prices versus resources stock prices.

Since October last year, the oil price has risen by around 45%.

Since October last year, the price of Woodside Petroleum, Australia’s largest “pure-play” oil and gas company has risen by around 10%.

Most broker valuations are done using oil and other commodity prices which are significantly less than the current prices.

The resources companies themselves are somewhat guilty of modelling their return on investment based on significantly lower commodity prices than those that currently prevail.

It’s a case of…

· I see the oil price is at US$120 a barrel, but I can’t believe it;

· I remember when oil was close to US$10 a barrel, and I can’t get that out of my mind;

· I am going to under-promise and over-deliver.

The Real Truth About The Future Oil Price

Despite the cautiousness, the truth doesn’t lie. NYMEX Crude Oil futures all the way out to December 2015 are priced at well over US$100 a barrel.

As we said a couple of weeks ago, we firmly believe US$100+ oil prices are here to stay.

Many resource sceptics believed that the sharp pullbacks in commodity prices a few weeks ago signalled the end of the resources bull market. In oil's case, bears were expecting a hasty retreat below the psychologically important US$100 a barrel mark.

Instead, just a few weeks on and oil has again hit fresh all-time highs, with prices reaching a record US$120 a barrel. In our view, triple-digit oil prices are here to stay.

As a reminder, we’re not the only ones who think this. As was recently reported in the AFR…

“Barclays Capital has put a rocket under its long-term oil price forecast, predicting the price of the black gold will average US$137 a barrel until 2015, up 44 per cent on its previous estimate made 18 months ago.”

Getting High On These Two Small Oil Stocks

A couple of weeks ago you may remember we highlighted two small oil stocks we thought were significantly under-valued.

You don’t?

In our most recent update to Members, we said this about one of the companies …

“When we last covered it we thought the company was a bargain-priced entry then, but over the past few months the story has advance significantly and become more attractive. In the meantime the company’s share price has halved, making the company extraordinary value in our opinion. When will the market wake up and smell the coffee, we ask?”

The share price is up almost 30% in the past month alone. It was one of the stocks we mentioned above, one that jumped 14% in one day alone just last week.

The other small oil company we highlighted is already the our best ever recommendation.

We first recommended the stock as a BUY back in February 2006. At the time, the share price was a lowly 5.4 cents and the total company was worth just $17 million.

For those of you not lucky enough to have bought at 5.4 cents, or at other share prices significantly below the 55 cents the shares traded at 2 weeks ago, you might be thinking you’ve missed the boat.

Fast forward to today, and on Monday this week, the shares closed up another 6% on the day, and now trade at 69 cents. That’s an impressive 25% jump in just the last 2 weeks alone.

The Time To Buy Is Now

It just goes to show how quickly and decisively share prices can move. Sitting on the sidelines and waiting for…

· A better price;

· The next stock market crash

can be an expensive investing strategy.

If a share offers value at today’s prices, the time to buy it is now. That doesn’t mean the share price can’t or won’t go down, because share prices can move independently of the company’s underlying value.

But over the medium to long-term, if your investment thesis is right – great company available at a good price – then you should ultimately be rewarded with a rising share price.

With the share prices of some of our specially selected small resource companies running hot, some jumping as much as 19% in just one day, we urge you to act now in order to access our current recommended stocks.

We wish you happy and profitable long-term investing.

P.S. It’s not just us who think the US economic woes are becoming increasingly irrelevant to the ongoing resources boom. Last week the AFR said “The strength in iron ore and coal really is a story about the rising strength of Asia, most notably the economic renaissance of China and India.”

P.P.S. Legendary investor Warren Buffett said in a recent interview on CNBC said “…if we're going to use 85 million barrels a day now and the rest of the world probably is going to increase its demand in the next five or 10 years, we're going to have a tough time maintaining production that satisfies those at this price, even.” Sounds to us as if Buffett might be an oil price bull too.

Two Big Flashing Buy Signals

2008-04-27T22:51:00.000-07:00

As the price of oil surges through US$117 a barrel, we make one of our biggest calls yet – triple digit oil prices are here to stay.

Whilst that may be bad news for motorists and frequent flyers, it means some of our favourite smaller oil stocks offer even more compelling value, including two we highlight below.

But you might have to be quick…one of our favourite coal stocks has already surged 67% higher in just 2 weeks.

Dear Contrarian Stock Market Investor,

This week’s surprising fact is that the Dow Jones Industrial Average is down only 3.4% in 2008. And here was everyone thinking the US recession was taking a heavy toll on US share prices.

Back here in Australia…

· Monday saw the S&P ASX 200 Index jump 171 points or 3.1%, its 6^th largest one-day percentage gain in 2008.

· The S&P ASX 200 Index is still down 11.7% in 2008.

So much for the saying “when Wall Street sneezes, Australia catches a cold.” Wall Street has a little sniffle, but Australia has caught pneumonia.

You could be forgiven for thinking it’s just not fair.

The words of George Bernard Shaw spring to mind…

“Life is not meant to be easy my child; but take courage: it can be delightful.”

Stock market investing can be both an uplifting and demoralising experience. One day, when share prices rise, particularly when one of your smaller companies jumps 10% or 20% in one session, you are in heaven, feeling like an investing genius.

The next day, stock prices fall across the board, dragging down the good with the bad, and dragging you into a state of despair.

But, as the great Warren Buffett once said…

"The most important quality for an investor is temperament, not intellect.”

Remember…

· All stock market investing should be over the long-term.

· In the short-term, as we have seen from the divergence in the US versus Australian stock market performance to date in 2008, share prices can be irrational.

· The best investors take advantage of short-term irrationality in share prices to buy high quality companies at cheap prices.

Put another way, and continuing Buffett’s quote above...

“You need a temperament that neither derives great pleasure from being with the crowd or against the crowd."

As you’ll see a little further down, we remain firmly of the opinion that the continuing disconnect between commodity prices and resource stocks offers some very compelling investment opportunities.

However, you may have to be quick.

The Coal Stock Whose Shares Jumped 67% in Just Over 2 Weeks

For example, remember the small Queensland coal explorer we first told you about 2 weeks ago?

At the time, we said…

“We also think we’ve found another key winner, one that happily flies under the radar of most of the resource investment community. At a market value of around $260 million, compared to BHP’s $225 billion, we think it’s just a matter of time before this small Queensland explorer with the large and growing coal base will see its share price reflect the inherent value in the company.

…we currently rate this company as a BUY, having done so since mid December, in which time the share price has hardly moved. But that may be about to change, given the threefold increase in the price of coking coal.”

On April 4^th 2008, the shares traded at 57 cents. Fast forward to Monday this week and the shares closed at 95 cents, meaning they’ve soared a staggering 67% in just over 2 weeks!

This share price performance succinctly highlights 3 attributes that are key to long-term investing success…

1. In the short-term, even if you think you’ve found a compelling investment opportunity, it may take some time for it to be recognised by a rising share price. As ever, patience is required.

2. Share prices can rise very quickly and somewhat unexpectedly. Trying to time your buys and sells is a futile exercise – you’ll have a good chance of missing out on the best days and weeks.

3. There is no guarantee the share price of a cheap company cannot fall even further. But only in the short-term. In the long-term, value is always rewarded.

A little further down we highlight two smaller oil companies that are trading at significant discounts to their implied valuations. One jumped 12% just last week, but still remains 45% below its October 2007 peak. The other is already up over 900% since we first recommended it as a buy, yet we think its best days may still be ahead.

But first, a word on oil.

US$100 Oil Prices Are Here To Stay

The real excitement in recent weeks has surrounded the oil price.

Instead, just a few weeks on and oil has in fact broken to fresh all-time highs, with prices reaching a record US$117 a barrel early this week. In our view, triple-digit oil prices are here to stay.

As regular readers will know, we’ve long been bulls on the oil price. But don’t just take our word for it….

As recently reported in the Australian Financial Review…

Demand for oil is soaring worldwide. And the fast-growing economies of China and India, in particular, are putting a huge strain on supply. Meanwhile oil supply is shrinking.

In a recent CNBC interview, legendary Texas oil and gas executive T. Boone Pickens said he expects oil prices will hold near or above US$100 a barrel for the rest of this year. He also said he doesn’t believe he will ever again see oil below US$50 a barrel.

Then there’s the legendary investor Warren Buffett who in a recent interview also on CNBC said “…if we're going to use 85 million barrels a day now and the rest of the world probably is going to increase its demand in the next five or 10 years, we're going to have a tough time maintaining production that satisfies those at this price, even.”

Many Oil Companies Trade At Compelling Valuations

At the start of 2007, we re-iterated the view that we have held since 2001; that is, that the price of crude oil would reach US$100 a barrel.

As we noted previously these views were scoffed at by other 'market experts' on numerous occasions (whether all these can still be called experts following the sub-prime debacle is debatable). Investment banks for instance were still using US$30 oil prices in their valuation models a year or so ago.

And it seems they have still not caught up with the game completely. We note that many energy companies continue to trade at compelling multiples.

In our view the share prices of quality energy stocks will undergo a re-rating over the net 12 months, and play catch up once it becomes completely apparent that oil's membership of the US$100 club is for keeps.

All of which is good news for the two small oil companies we highlight below. But first, we attempt to answer the $64,000 dollar question on everyone’s lips…

Is It Safe To Buy Stocks Now?

One of the most popular questions we are asked here is whether it is safe to get back into the stock market.

Our stock answer is yes, but as long as you…

· Have a long-term investing perspective.

· Are buying the right stocks at the right price.

· Are avoiding the wrong stocks in the wrong sectors.

· Are avoiding excessive use of margin lending.

· Have a clear, understandable stock market investment strategy, one that you will continue to follow regardless of the day-to-day movements in the stock market.

· Can stomach 20% falls in the value of your portfolio whilst still sleeping well at night and not being spooked into panic selling at precisely the wrong time.

Then there’s our contrarianism, our ability to go against the crowd. When the stock market is all the talk at dinner parties, we become naturally cautious. On the other hand, when people are dumping the stock market in favour of cash or property, we become naturally bullish.

Which conveniently brings us onto…

The Two Big Flashing Buy Signals

Buy Signal #1

Last weekend, The Australian Financial Review’s Smart Money section lead with an article titled “Preserve Your Wealth”. The article featured five ways to preserve your wealth, including a cash fund, a cash-enhanced fund and bonds.

We make no criticism of the AFR, because as usual it is a very good article, but when we see the mainstream press featuring cash and bonds as investment options, we instantly see it as a sign that it is a good time to be buying shares.

Individual investors have an uncanny knack of buying shares at the top of the market and selling them at the bottom. When they sell, often booking a hefty loss, they usually sit on the sidelines during the market’s inevitable recovery, only buying again after the market has jumped significantly higher.

Don’t do it.

Don’t follow the crowd.

Having seen the stock market dive 18% from its November 2007 peak, the battered and bruised investing crowd is now considering investments in cash and bonds.

If you think about it rationally, it doesn’t make sense.

If people thought BHP Billiton was a buy back in November last year when the shares peaked at close to $48, AND since them commodity prices in general have risen, why wouldn’t they have been buying more BHP shares at the cheaper prices on offer?

We don’t follow the crowd. For example, in the midst of the January 2008 stock market mayhem, we rushed a special BUY alert email to our Members, recommending they buy BHP Billiton. At the time, the shares were just $31. This week, they traded at $44, up over 40% in just 2 months.

Enough said.

Buy Signal #2

As we said above, commodity prices in general have risen, yet the share prices of many resources stocks have fallen along with the rest of the market.

We believe some of the ‘disconnect’ has occurred because people have been selling resource stocks because they had done well in the past. Investors love booking a profit and hate booking a loss.

Anyone who has held resource stocks for the last couple of years has likely done well. They would likely be sitting on some nice profits. But because of the market turmoil, some forced selling due to margin calls and Opes Prime/Lift Capital related selling, people have dumped perfectly good companies, booking profits.

When having to make a forced sale, it is psychologically easier to sell stocks that have done well rather than sell stocks that are in the red. This has inevitably driven down resource company share prices.

Oil price – up over 45% since October last year.

Gold price – up almost 23% in the same period.

S&P ASX 300 Resources Index – virtually unchanged.

Now obviously the S&P ASX 300 Resources Index is made up of stocks other than oil and gold, and for sure, the share prices of some oil and gold stocks have fallen for perfectly valid reasons.

But as a general indication of the ‘disconnect’ between commodity prices and resource stock prices, we think the numbers above paint a pretty indicative picture.

In a perfect world and an efficient stock market, the share prices of resources companies would largely follow the underlying prices of their respective commodities.

But we don’t live in a perfect world, and at times (like now) the stock market can be inefficient.

To us, it all adds up to a buying signal for specially selected resource stocks.

Good Things Come To Those Who Wait

Take the small oil company we told you about last week.

As a reminder…

· The company is budgeted to produce around 300,000 barrels of oil in 2008, with profit margins after all expenses over US$50 a barrel. That translates into budgeted profits of around $16.5 million.

· As well as the potential to further develop its existing oilfields, the company has further growth potential from two identified opportunities. One has the potential for one million recoverable barrels of oil, the other a massive 25 million recoverable barrels. There are significant other growth opportunities too.

· The company is profitable, has no debt, has $11 million in cash, and is planning on drilling 15 more wells in 2008. It has a respected management team with hundreds of years of collective oil industry experience.

· Today the company is trading on a price to earnings ratio of just 4 times, making it one of the very cheapest oil stocks on the market. If that’s not enough, the company themselves think their own shares might be worth around $1.55, more than 300% above their current share price.

In our most recent update to Members, we said…

Well, perhaps the market is finally waking up to this bargain priced oil producer. Last week its shares jumped over 12%. But that still leaves them 45% down on their October 2007 share price…

Oil price – up over 45% since October last year.

Share price of small oil producer/explorer – down 45% since October last year.

In anyone’s language, that is a disconnect.

In our language, this small oil company offers extraordinary value.

Remember, as we said above, value is always rewarded. You just don’t know when. But if you are not in it, you can’t win it.

Our Best Ever Recommendation To Date

Picking the right shares is obviously the key to making your stockmarket riches, and that’s where we think we can help you.

We generally focus on smaller companies – they are often over-looked and under-researched, allowing us to find companies with outstanding prospects, yet valued at a fraction of the price of larger companies.

Some of our very best past recommendations have been smaller companies.

Take the small oil company that is already our best ever recommendation. The company typifies exactly what we are looking for when we search for stockmarket hidden gems.

We first recommended the stock as a BUY to our Members back in February 2006. At the time, the share price was a lowly 5.4 cents and the total company was worth just $17 million.

This was your typical under-researched small company. The share price had gone nowhere for the previous two years. As far as the market was concerned, it was a corporate basket case, a perennial under-performer, destined to spend the rest of its days stuck in penny share land, going nowhere fast.

But we noticed things were changing for the better. In our initial report in February 2006, our special buy email alert to Members said…

“Over the past 12 months, key board and management changes have occurred that indicate exciting times ahead for investors. The company now has all of the key foundations in place for success – a dynamic board and management team, a solid producing oilfield in Thailand, and the ability to evaluate and pursue projects on the international stage.”

The Cheap Tiny Company That Struck Oil

We also had the opportunity to meet with the company’s new Chairman and Chief Executive Officer to hear first hand about their plans to reinvigorate the company. Crucially, these two men had extensive mining sector experience, something we always look for with junior mining and resources companies.

Finally, the company was cheap, based both on its underlying oil assets and our positive view of the oil price. We concluded our BUY report by saying…

“The company’s market capitalisation is modest by industry standards, particularly given the quality of its board and management team, and its level of drilling activity. We believe the share price downside is limited and we recommend the company as a Buy to all Members around 5.4 cents.”

How You Could Have Turned $20,000 into over $200,000

Fast forward to now, and the share price of this oil company is around 55 cents.

For Members who bought at 5.4 cents, at 55 cents they’d be sitting on a profit of over 900%.

To put that into perspective, an investment of $20,000 would now be worth a quite unbelievable $203,703.70.

For those of you not lucky enough to have bought at 5.4 cents, or at other share prices significantly below the 55 cents the shares trade at today, you might be thinking you’ve missed the boat.

We beg to differ. There’s a stock market saying that you should cut your losers and let your winners run.

In the case of this small oil company, that strategy has been hugely successful to date. But rather than thinking investors have missed the boat, we think the best days for this company could still be ahead of it.

Even after the huge run up in its share price, the company is still only worth around $366 million, giving it the potential to grow into something much bigger.

We Upgraded This Oil Company To A BUY Just Last Week

In fact, so confident are we in the company’s future prospects, just last week we upgraded it to a BUY, our only new buy recommendation of the week.

Why?

· Last week they released a report by oil industry experts showing an upward revision of more than 300% in the company’s Thai oil reserves.

· Their attributable total 2P oil reserves (Proved & Probable) now stand at almost 11.4 million barrels. Total 3P reserves (Proved, Probable & Possible) are in advance of a staggering 45 million barrels of oil.

· We conservatively calculate the in-ground value of the company’s Thai oil reserves at 80 cents a share, some 45% above the current share price.

· There is more good news too in that the company is looking to accelerate its drilling programme for 2008 – we anticipate further details in the coming week.

· We concluded our Report by saying “…for Members with no current exposure we believe now is the right time to buy, and we recommend the stock as a Buy around 55 cents.

Searching For More Great Small Resource Companies

As we said above, some of our very best recommendations have been smaller companies.

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…

The Small Oil Company Mentioned Above – Up an amazing 919% in a little over 2 years!

Terramin Australia – Up a breathtaking 674% since December 2005!

Platinum Australia – Up an astonishing 549% since November 2005!

(Share prices taken on Monday 21^st April 2008. Gains don’t include dividends.)

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

With the share prices of some of our specially selected small resource companies shooting higher in a matter of days, we urge you to act now in order to access our current recommended stocks.

We wish you happy and profitable long-term investing.

P.S. As we’ve said previously, we think the world is experiencing a once-in-a-century boom via China. The country is undergoing unparalleled industrialisation, with an enormous rural migration to cities. The Chinese economy is growing at an annualised rate of 12%. For a country with over 1.3 billion people, giving it more than 20% of the world’s population, that sort of growth is simply stunning. We think resource-rich Australia is uniquely placed to benefit from the Chinese boom.

P.P.S. Bank of New York Mellon Corporation chief economist Richard Hoey was quoted in the Weekend AFR as saying “No one has a shorter-term time perspective than a hyper-leveraged investor with one hour to meet a margin call, which has created opportunities for those with a longer-term perspective.” We couldn’t agree more.

Three More Tremendous Buying Opportunities

2008-04-15T16:27:00.000-07:00

Whilst the US economy and banking shares burn, China continues to boom, with resources stocks set to be the main beneficiaries.

Not surprisingly, BHP shares rose 9% last week. But some smaller resource companies did even better than that, with one of our favourites soaring 40% in the week.

We firmly believe there are some compelling buying opportunities in small resource stocks…but you may have to be quick.

Dear Long-Term Stock Market Investor,

A week can feel like a long time in the stock market. Where 2 weeks ago many stock market glasses were half full, now they are half empty again.

Last week we had another margin-lending broker calling in the administrators, this time Lift Capital. The effects of the Opes Prime collapse continued to reverberate around the stock market, especially hitting the share prices of some smaller resource companies.

The share prices of Tabcorp and Tatts Group were massacred by over 20% each after the Victorian government ended the companies’ gaming licensing duopoly.

All in all, it added up to the benchmark S&P/ASX 200 Index falling 3.2% on the week, its fourth largest weekly loss so far this year. For the 2008 year to date, up till the end of last week it was down a portfolio-damaging 14%.

Then late on Friday our time, US conglomerate and market bellwether GE reported disappointing first quarter results and cut its earnings outlook for 2008. Its shares slumped a whopping 13% on the day, its worst daily fall since the stock market crash of 1987.

The GE result once again confirmed the US economy continued to teeter on the edge of recession, that’s if it is not already in recession.

The headlines in Monday’s Australian Financial Review were not promising…

“Shares set for a shellacking”

“Gloom gathering as big names report”

“Lift sends that sinking feeling through the market”

“Corporate debt is the next time bomb”

Not surprisingly, Monday saw another 1.8% shaved off share prices, including Virgin Blue plummeting over 20% after warning of lower profits.

But as you’ll see below, we firmly believe there are some compelling buying opportunities, especially amongst smaller resource companies. But more on that a little further down…

Steer Well Clear Of Banks

We’ve been advising our Members avoid the financial services sector for quite some time now. We hate to say “we told you so”, but just take a look at last week’s share price action of the Big 4…

ANZ Banking Group – DOWN 12%

Westpac – DOWN 11%

Commonwealth Bank – DOWN 9%

NAB – DOWN 7%

We continue to advise our Members to avoid the banking sector.

The Resources Boom That Shows No Signs Of Stopping

Yet amidst all the negative headlines, the US economy, and the general doom and gloom surrounding the share market, there are plenty of positives…

· Last week, copper, crude oil, iron ore, coking coal and thermal coal all hit record highs, with oil trading above US$112 a barrel before falling back slightly.

· Although gold has come back from its recent peak of over US$1020 an ounce, it is still up over 20% in just the last 6 months.

· Last week, despite the falling stock market, BHP Billiton shares rose a very impressive 9%.

· In his AFR Weekend Market Monitor column, Glen Mumford said “I hold a view on equities at present…that the market might have already seen its lows.”

· In its April 2008 World Economic Outlook report, the International Monetary Fund (IMF) said that growth in China is expected to be 9.3% in 2008 and 9.5% in 2009, an excellent sign that the commodities boom is set to continue.

· Reserve Bank of Australia (RBA) thinks “that demand growth in Australia is now in the process of moderating.” We think such a statement suggests that interest rates are now firmly on hold.

Whilst The US Burns, China Booms

Whilst the US is burning, China and its fellow emerging economies like India are booming.

It seems obvious to us here that this all adds up to a resources boom that is set to continue for years, if not decades ahead.

Yet, judging by the share prices of some resources stocks, especially at the smaller end of the market, many investors refuse to believe it.

Change can be wonderfully enlightening and motivating. Whilst many people will happily admit to liking change, they continually fail to embrace it, falling back on their old habits or simply doing nothing different.

How else can we explain why we eat the same breakfast most days of the year, or how we are still banking with the same institution we first banked with when we were in primary school?

Change is here. In the years ahead, China will be the world super-power. Here in Australia, we can see the change happening now, but mentally we can’t quite accept it.

We can see the oil price above US$110 a barrel. We can see current oil consumption is virtually equal to current oil supply. We know the world population is growing, and will continue to grow. We can see it is getting more and more expensive to find new oil supplies. But mentally we can’t accept the long-term oil price is likely to stay above US$100 a barrel.

The Inevitable Turnaround In Resource Share Prices

We can see the changing of the guard. Like others, we can see the change. Unlike others, we embrace the change.

We are not stuck in the past, thinking the oil price will one day return to US$50 a barrel.

Despite its pull-back from US$1000 an ounce, we remain extremely confident in the long-term appreciation of gold in the face of a falling US dollar.

But there’s one thing we are not changing…that we continue to recommend our Members stick with the strength of this market, which is the resource sector.

In fact, in our most recent report to Members, we said “…the resource sector continues to present a tremendous buying opportunity. We encourage Members to remain patient and to wait for the inevitable turnaround in resource equities that we believe is not far off.”

In fact, the turnaround may have already started – a little further on we highlight a Queensland coal explorer who jumped almost 40% last week and a tiny South Australian explorer whose share price rocketed 25% on Monday this week.

Market Up, Market Down, Shake It All Around

At this stage, it’s worth reminding everyone that stock market investing should be long-term in nature – we’re talking 3, 5 and 10 years or more.

Share prices go up and down every single trading day. Some are “good hair days”, others are “bad hair days”.

One day everyone is worried that the US recession will be deeper and longer than expected. The next day everyone is worried that China’s growth is unsustainable. In both cases, the market will fall, dragging the good down with the bad.

The day after everyone is euphoric because the US recession might be relatively mild, Chinese inflation is easing and Carlton have finally won a game of footy. The market soars in delight.

It’s impossible to predict what the share prices of companies will do on a day-to-day, week-to-week or even month-to-month basis. Much easier to predict is what they will do on a year-to-year basis.

If you believe, as we firmly do, that…

· The Chinese growth story is here to stay for years and decades ahead;

· The oil price and the price of commodities in general are going to rise in the years and decades ahead;

it follows that you should invest in companies set to benefit from those mega-trends, and that you should do so with a long-term perspective.

As if to emphasise the point, commenting on the North American markets, Trapeze Asset Management recently said the following…

“Over any 20 year period stocks have always outperformed all other asset classes. Over any 15 year period stock outperformance drops to 93% (although it would also be 100% if you exclude the '30s depression); over any 10 year period, 89%; over any 5 year period, 74%; and, for any 1 year period, 70%.”

Also remember history has shown that time in the market is more important to your returns than timing the market.

This Market Offer Tremendous Buying Opportunities

We believe there is a fundamental disconnect between the performance of resources share prices compared to the record commodity prices.

Whilst that might be frustrating for people who already own resources stocks, as we said earlier, we believe the disconnect offers patient, rational, long-term investors with tremendous buying opportunities.

This is especially so at the smaller end of the market. Many smaller resource stocks have seen their share prices hammered because of …

· Forced selling to meet margin calls.

· Opes Prime/Lift Capital related selling.

· Panic selling by people getting out the market at whatever cost, just to end the pain.

· A general lack of appetite to invest in smaller resource stocks, otherwise known as a flight to quality.

Of course, not all small resource stocks are made equal. For every quality resource stock, there are 20 or so very poor stocks, complete will little cash, highly speculative exploration tenements and with management whose number one priority is to try and cash in on the great mining boom of 2007.

The Perfect Time To Buy

What have margin calls, forced selling, panic selling and a flight to quality got to do with the value of a decent small resources company?

Not much.

What have margin calls, forced selling, panic selling and a flight to quality got to do with the price of a decent small resources company?

Quite a lot.

One of our favourite quotes of stock market investing legend Warren Buffett is…

“Price is what you pay. Value is what you get.”

The price of a company changes much more quickly than the value of a company. At any given moment, there can be a disconnect between the price of a company and its underlying value.

Because of a soaring share price, driven higher by greed and speculation, a company can be significantly over-valued.

Because of a sharply falling share price, driven lower by fear and forced selling, a company can be significantly under-valued.

One of the keys to successful stock market investing is to do so with a margin of safety. If, in your opinion, a company is significantly under-valued compared to its future profitability, that is the perfect time to buy.

Of course, there is no guarantee the share price of a cheap company cannot fall even further. But only in the short-term.

In the long-term, value is always rewarded.

There’s $380 Million Worth Of Value In This Oil Company

Let’s use a simple example to illustrate the point.

· You assume the long-term oil price averages between say US$80 and US$140 a barrel.

· You discover a company which is budgeted to produce around 300,000 barrels of oil in 2008, with profit margins after all expenses over US$50 a barrel. That translates into budgeted profits of around $16.5 million. You estimate the value of this existing field at around $120 million.

· As well as the potential to further develop its existing oilfields, the company has further growth potential from two identified opportunities. One has the potential for one million recoverable barrels of oil, the other is estimated by the company to be worth between $135 million and $200 million. There are significant other growth opportunities too.

· In a recent broker presentation, the company itself estimated its total risked potential value to be around $380 million.

What price might you expect to pay for this company with an estimated value of $380 million?

Remember, price is what you pay, value is what you get.

In a “greedy” market, you might expect to pay around $340 million, a modest 10% discount to its estimated value.

In a “normal” market, you might expect to pay around $265 million, a 30% discount to its estimated value.

In a “fearful” market, you might expect to pay around $115 million, a 75% discount to its estimated value.

Would you be prepared to pay $115 million for this company? We’d suggest you’d seriously consider it.

Wake Up Market And Smell The Coffee

By this stage, you’ve probably twigged that this is a real company, a company we recommended our Members BUY back in July last year.

In our most recent update to Members, we said…

How much would you pay for this company?

We suggested above you’d seriously consider paying $115 million.

How about if we told you today, you can pay around $80 million for this company?

The price is $80 million. The value is $380 million. To us, that is investing with a large margin of safety.

Warren Buffett once explained how he looks at margin of safety…“You build a bridge that 30,000-pound trucks can go across and then you drive 10,000-pound trucks across it. That is the way I like to go across bridges."

The Coal Explorer Whose Share Price Soared 40% Last Week

Thankfully, not all smaller resource stocks have had their share prices in the doldrums.

As reported in the AFR last week, Korean and Japanese steel makers have confirmed the price of coking coal for 2009 contracts was settled at US$305 a tonne, more than trebling the current price of US$98 a tonne.

Last week we told you about the key winner we thought we’d found from the trebling in the coal price. We said it was a company that happily flies under the radar of most of the resource investment community.

We said…“At a market value of around $260 million…we think it’s just a matter of time before this small Queensland explorer with the large and growing coal base will see its share price reflect the inherent value in the company.”

It seems like it hasn’t taken too long for the market to recognise the company’s value – last week alone, the share price jumped almost 40%.

As a reminder, there are plenty of other things to like about this company too…

· It has no debt and $55 million cash in the bank.

· It is focused on coal exploration and development in Queensland, having accumulated attractive acreage positions comprising four projects that are at various stages of maturity.

· Its aim is to progress its current identified coal resources towards production within the next few years whilst at the same time, further exploration will hopefully yield new coal deposits – it has an aggressive exploration programme during 2008 worth $15 million, almost double last year's budget.

· In terms of resources, it aims to boost its coal resources from over 100 million tonnes to somewhere between 280 - 480 million tonnes.

· In terms of production, it is targeting first coal production during 2011 and has a target of 12.5 million tonnes of coal production by 2014/15.

· Longer-term coal demand is anticipated to rise by around 60% between now and 2030, according to the World Energy Council. Of this demand, Asia is expected to account for around 86% of the increase.

We think the firm share price gains last week signal a clear revival of longer-term upward momentum. Given the strength of global coal prices, we believe the outlook for this Queensland coal explorer remains excellent.

The charts also remain promising. Just last week we said…

“Notwithstanding the potential for a brief period of consolidation in the near-term, we believe that prices will soon break above resistance at 80 cents. In our opinion, such a move will add further buoyancy to positive investor sentiment, opening the door to an eventual retest of the all-time high of January at $1.135.”

This week, the share price has indeed broken above the 80 cents resistance level, meaning that from both a charting and a value perspective, the future looks very promising for this Queensland coal explorer.

Beware: Share Prices Can Rise VERY Quickly

In a tough market such as this, it’s virtually impossible to predict when a company’s share price will reflect its value.

The oil explorer/producer above is still waiting for its price to catch up to its value. But if you are approximately right in your valuation of a company, the share price will eventually reflect that value. You just don’t know when.

But, when it happens, it can happen very quickly, as we have seen with the Queensland coal explorer above, where its share price jumped almost 40% in just one week.

Another of our Report companies saw its share price jump a whopping 25% in just one day this week alone.

In our most recent Report to Members, we said…

“We continue to rate this company as one of the sector’s best pure exploration plays…they have one of the best acreage packages and technical teams in the business.”

Since that Report, just a few weeks ago, the share price has jumped OVER 50%.

Yet, even after that jump in the share price, the whole company is valued at around $13 million, of which around $7 million is cash.

The company is a focused explorer searching for world class ore deposits iron, oxide, copper, gold and uranium in South Australia. Its two project areas are close to BHP Billiton’s huge Olympic Dam mine. Last year, BHP upgraded its estimate of copper and gold in the deposit, with the present in-the-ground value of the uranium, copper and gold surging past $US1000 billion.

With the small explorer having recently recommenced drilling on one of their project areas, and more drilling slated for the second part of this year for their other project area, we look forward to more positive news – news that will hopefully soon see an increase in the company’s value and also its share price.

Searching For More Great Small Resource Companies

We are value investors. We don’t just search for cheap companies. We search for cheap companies with excellent management, outstanding assets and sustainable competitive advantages.

We generally focus on smaller companies because they are generally over-looked and under-researched, allowing us to find companies with outstanding prospects, yet valued at a fraction of the price of larger companies.

Some of our very best recommendations have been smaller companies.

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 570%* since December 2005!

Andean Resources – Up an amazing 524%* since November 2005!

Platinum Australia – Up an astonishing 481%* also since November 2005!

(Share prices taken on Monday 14th April 2008. Gains don’t include dividends.)

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

Know Exactly Which Shares To Buy When The Market Rebounds

We pride ourselves on being prepared. Between our two flagship publications we currently have OVER 100 different companies in our hypothetical portfolios.

Our experienced analysts also have a solid working knowledge of hundreds of other companies too. Many of the companies we follow are smaller companies, some of which have been hammered during the recent market sell-offs.

But rather than panic, we see many of the share price falls in smaller resource stocks are great buying opportunities – witness the companies highlighted above.

With the share prices of some of our specially selected small resource companies shooting higher in a matter of days, we urge you to act now in order to access our current recommended stocks.

We wish you happy and profitable long-term investing.

P.S. On Tuesday this week, QBE announced a takeover offer for fellow insurance group IAG, owner of the NRMA, SGIC, SGIO brands, amongst others. The offer was rejected by IAG, yet IAG’s share price still jumped 11%. Only last month, IAG’s shares languished around the $3.20 mark, some 38% less than the price now. It took the takeover offer to do it, but now the share price is a lot closer to the company’s value – as we said above, value is always rewarded, eventually, and sometimes faster and quicker than anyone expected!

P.P.S. The poor share price performance of the West Australian gold explorer we told you about a few weeks ago continues to stagger us. We have had numerous meetings with their Managing Director, and we must reiterate that in our view the company appears to be doing everything right. We think the current price weakness will soon present an outstanding buying opportunity for astute investors.