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Weekend Edition

One of the best investors ever is "all in" on InterOil
Saturday, November 13, 2010

Last week, George Soros' hedge fund increased its ownership in InterOil to 11.9%, or 5,257,422 shares... 1.2 million shares are represented by call options. In other words, Soros, one of the best investors in history, is all in on InterOil.
Shares jumped 7%, from $75 per share to just over $80.
InterOil is probably the most debated stock of the year. Bulls believe it could have one of the largest oil and gas discoveries in history. Dissenters say it's a complete fraud. They believe InterOil is exaggerating its reserves. We knew this stock would either skyrocket or be a zero. So we didn't leave anything to chance...
We sent analyst Matt Badiali to Papua New Guinea to research the company in person. And we sent our friend Cactus Schroeder with him. Cactus is a Texas wildcatter. He knows more about on-the-ground oil and gas research than anyone we know (he just sold his last discovery in Texas' Eagle Ford for $1 billion).
Matt returned to the States with good news... He thought InterOil was a "ten-bagger" (it would make investors 10 times their money). While we trumpeted the stock as a long, others were talking up the short argument...
The only reason we were able to maintain conviction on InterOil is because of our on-the-ground research... Matt actually walked InterOil's discovery, halfway across the world. He spoke with top management and other analysts. He listened to every opinion out there. Could we still be wrong? Sure... but we've got a lot of big money – and the market – on our side. The stock hit a seven-month high last week.
To learn more about Matt's ideas, click here.
Gold topped $1,420 this week, another new high.
I was on colleague Frank Curzio's Stansberry & Associates Investor Podcast earlier this week. He asked me if I recently recommended gold "as a momentum play or for fundamental reasons."
I told him it was strictly fundamentals. We're simply printing too much money. Brazil's finance minister, Guido Mantega, recently said, "Everybody wants the U.S. economy to recover, but it does no good at all to just throw dollars from a helicopter."
When the Brazilians tell you you're printing too much money... YOU'RE PRINTING TOO MUCH MONEY!
I like gold because it's the only real money. I like coal and iron ore because they have relatively simple geology. And I like natural gas because it's the only fossil fuel in abundant supply that has political tailwinds behind it.
But among those commodities, natural gas is the only one today that makes me feel like a contrarian – paying cheap prices and receiving excellent value in return. Of the four stocks that account for about one-third of my net worth, two are direct plays on the development of domestic natural gas supplies.
We subscribe to the view that, in natural resource investing, you're either a contrarian or a victim. Given that, natural gas is about the only commodity I'm really bullish on. The easy money has already been made on all the others...
But with natural gas, the easy money is still sitting on the table. For a while, the conventional wisdom has been down on natural gas. There's too much supply, people said. As a result, prices have fallen to historic lows.
But supply is a funny thing. Everyone thought the world was awash in oil in the early 1970s. Then, the Saudis disabused us of that idea through their history-making embargo.
That's why ExxonMobil, Chevron, Reliance, Shell, and others are buying now. It's gotten too cheap. You never know what's going to happen... But history has taught us to expect something will make natural gas prices go higher. You just don't get to know exactly when or what it'll be.
Dan Ferris just recommended two oil and gas producers in the current issue of his newsletter, Extreme Value. One is primarily an oil sands company, and the other is primarily a natural gas producer. Both have more undeveloped reserves off their balance sheets than developed reserves on. The companies say they'll double their production within five years.
Most natural gas companies would have to go shopping for more land to fulfill that promise. But these two companies don't need any more land. Each has several years of production locked under the ground in massive North American land positions.
One company has about 12 years' worth of production in natural gas reserves on the balance sheet... and about three times that in undeveloped land off the balance sheet. It's got a drilling inventory of 35,000 separate locations. If gas prices move, these guys will make a ton of money and do it faster than a lot of other competitors who will be scrambling to overcome higher costs.
The other company is minting money, using relatively inexpensive natural gas to produce oil from bitumen (oil sands). It reported a 25% production increase last quarter. 
 To learn about these two stocks, check out the latest issue of Extreme Value. To learn more about a subscription, click here.
S&A Research

This Week's Winners
S&P 500 Symbol Change
Consolidated Energy CNX +14.0%
Fluor FLR +12.8%

Countries Symbol Change
Chile CH +1.3%
Indonesia IF +1.2%
Japan EWJ +0.8%

Sectors Symbol Change
Oil Services PXJ +4.5%
Nuclear NLR +4.2%
Gold Mining GDX +3.0%

Commodities Change
Coffee +7.3%
Palladium +7.0%
RBOB Gas +7.0%
Date Range:11/4/2010 to 11/11/2010
This Week's Losers
S&P 500 Symbol Change
Dean Foods DF -27.5%
Cisco CSCO -15.2%
Assurant AIZ -12.9%

Countries Symbol Change
Spain EWP -7.5%
Italy EWI -6.0%
Austria EWO -5.8%

Sectors Symbol Change
Real Estate IYR -2.8%
Defense PPA -2.7%
Gambling BJK -2.6%

Commodities Change
Corn -4.8%
Sugar -4.4%
Cocoa -2.4%
Date Range:11/4/2010 to 11/11/2010
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