Dear Reader,
In a moment, we’ll explore some of the best ideas for small cap investors in the resource sector…
Before that, a quick tip off. Last week in The Right Side I told you about an interesting document I’d been privy to. It was a working draft of Mike Tubbs’ new “invisible dividend” report. Well, as I suspected, it’s been causing quite a buzz.
It seems investors can see the huge potential of Mike’s unique style of stock picking. I’m not surprised – I’ve re-read the report and it makes total sense. I really believe this is a revolutionary insight that Mike’s discovered.
You’ll see what I mean when we send you this report tomorrow at around lunchtime. Just take a look at the returns this strategy has delivered. Then have a look at what it’s predicting now. What just one of these shares could return seems hard to believe… but entirely credible in my opinion. Have a read tomorrow and see what you think.
Now, to today’s story…
Why it pays to think small about oil
Consider the following: The number of cars on China’s roads has gone up by a staggering 25% in a single year. So Nick Su, the finance chief of the AIM-quoted Chinese oil refiner Haike Chemicals (ticker: HAIK), told me last week.
Consider also that China has thrown a sizeable portion of its four trillion yuan stimulus package on a mammoth programme of infrastructure development: Bullet trains will connect major cities and brand new highways will be built across the entire country.
This ensures that demand for steel and other natural resources, especially energy, remains sky-high. That’s of big interest to you as an investor. So far, so good. But it begs a major question…
Where is the fuel going to come from? If you know that, then you’ll know where the serious money is going to be made...
Take uranium for example. Uranium is in big demand. Here’s what Richard Lockwood, manager of the City Natural Resources High Yield Trust, has to say:
“… China’s southern Guangdong province is planning a six-fold increase in its nuclear power generating capacity. Interestingly, this target is approximately 2.6 times China’s total uranium generating capacity. Even more interesting is the lack of any direction as to where the necessary uranium might come from.”
Interesting indeed, and a good reason you might want to take a look at uranium miners like Kalahari Minerals (ticker: KAH). The uranium story could be a major theme in the years ahead.
Of course, one reason why uranium is in demand is because other fuels for generating electric power are in short supply. There is not much chance of oil being diverted to power generation because most of us still need petrol to get about. And with China alone needing fuel for 25% more cars on its rapidly expanding road network, one thing is abundantly clear: the world needs more oil.
It’s clear that a good investor should have some exposure to oil and gas. But you need to know where to look – and here it pays to think small, not big…
There’s a problem with buying into the oil majors, such as BP and Shell. They sell so much of the stuff each day that they a face a continual, expensive challenge to replenish their reserves. But small explorers are not in this position. This is of real significance to you as an investor. Let me explain…
If a small explorer makes a good oil discovery it does not simply offset the oil that it’s selling. Instead, it takes them from a position of having no oil – and consequently, a very uncertain outlook – into one where they have a profitable long-term future. So shareholders who look to small explorers can make big money. But where exactly should you be looking?
For me, the crucial factor is whether the explorer’s licence area has the potential to host a really major reserve.
That is why I like Kurdistan, home of Gulf Keystone (ticker: GKP) – which last week further increased the estimated size of its Shaikan find – and Sterling Energy (ticker: SEY).
I also like the Falklands, where the licence holders are Borders & Southern (ticker: BOR), Desire (ticker: DES), Rockhopper (ticker: RKH) and Falkland Oil & Gas (ticker: FOGL).
Discovered: A high-reward/low-risk play in oil
But there’s no getting away from the fact that even these ventures pose risks. For example, for the Falklands companies, the attitude of Argentina presents a political risk. There is also a major technical challenge to extract the oil.
This got me thinking: is it actually possible to find a high-reward/low-risk play in oil? It sounds too good to be true. Yet I have found just that and I’d very much like to share it with you…
This company is in an area that could hold several billion barrels of oil. It is politically stable. It is in a good spot, geographically. And the exploration challenge looks relatively mild. In short, it looks like an irresistible bet.
An insider friend of mine told me this was ‘the biggest thing he had ever seen’. If you’re interested in finding out more – and you really should be – don’t miss this month’s edition of Red Hot Penny Shares, where I reveal all you need to know about my new top oil penny share tip.
You can get hold of my full recommendation by clicking here.
Good investing,
Tom Bulford
For The Right Side
P.S. Keep an eye out tomorrow for our urgent report on Mike Tubbs’ groundbreaking investment strategy. We’ll be sending this to you tomorrow at around 10am. As a heads-up, just one of the shares Mike recommends could make you up to £30,700. How can we arrive at a specific figure like that? All will be revealed in this report…
Editor’s Note: Tom Bulford is the editor of Red Hot Penny Shares, the UK’s leading penny share newsletter. Tom’s latest recommendation is for a company ‘on the verge of cornering an £11bn industry’. He believes it could make you gains of 154% in 12 months. But DON’T rush in. Having shot higher recently, this share is slowly pulling back. But it’s just above the maximum price Tom believes you should pay. So by all means read Tom’s report right now, but don’t buy the shares until you see Tom’s “buy limit” reached. It could be today! Click here for details.
P.S. If you enjoyed this article you can find out more about our free email, The Right Side by clicking here.
