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How To Get Into All The Hottest Nightclubs For Free

By Tom Dyson, publisher, The Palm Beach Letter
Thursday, November 1, 2007

On August 21, I devoted the entire issue of The 12% Letter to my favorite backdoor investment into the great Alberta oil-sand boom...

A backdoor play is a way of participating in a popular investment idea that few other people have thought of. It's covert. It attracts scant attention. The crowd has no idea it exists. But it's the only sensible way to invest in a hot idea.

Imagine you're trying to get into a fashionable nightclub after 10 p.m. The club is full. The bouncers won't let anyone else in. The people inside bought tickets months ago.

You have two choices:

You can join the back of the line. You'll probably wait for three hours. It's likely the door attendants will deny you anyway. And even if they let you in, you'll probably face a steep cover charge...

Or you can find the back door. It's probably down an alley somewhere, near the dumpsters, where the bar staff leaves the empty beer kegs. Slip the barback a $20 bill next time he comes out with trash. He'll let you in through the fire exit. You won't pay the cover, and you won't wait in line like everyone else...

This analogy isn't perfect. Sneaking into nightclubs is much more risky than what I have in mind, but you get the idea...

That's exactly what we did with PrimeWest (NYSE: PWI). PrimeWest is the Alberta natural gas trust I recommended two months ago as our backdoor play into the Athabasca oil sands...

The oil sands are a huge deposit of oil, just across the U.S. border in Canada. The Canadian government says Athabasca holds more oil than the entire Middle East.

The oil-sands region is the size of Florida. So far, energy companies have mined only about 3% of it. The U.S. Energy Information Administration (EIA) estimates production in the oil sands will quadruple to 3.3 million barrels of oil per day by 2025. Other sources I've checked – including official Canadian government statistics – say the same thing.

The press calls Athabasca the "savior of American energy policy." New companies are rushing to set up operations there, and investors have piled into the obvious oil-sand investments... like Suncor (NYSE: SU), five-year return: 595%; Canadian Oil Sands Trust (TSX: COS-UN), five-year return: 444%; Petro-Canada (NYSE: PCZ), five-year return: 304%; and Oilsands Quest (AMEX: BQI), five-year return: 3,328%.

For investors, Athabasca is the hottest nightclub in the energy sector.

If you want to invest in Athabasca today, you can either join the back of the queue and buy the same expensive investment vehicles as everyone else, or you can buy cheap Alberta natural gas assets – such as PrimeWest – and walk in through the back door.

We chose PrimeWest... and it paid off big time...

On September 24, PrimeWest's management announced a large oil company from the United Arab Emirates – the Abu Dhabi National Oil Company (ADNOC) – had offered to buy PrimeWest for C$26.75 a share in cash. The stock jumped 34% on the news. We paid $19.58 only six weeks earlier.

I advised readers in a September 24 e-mail to sell their PrimeWest shares and bank the 35% profit.

Natural gas is an essential supply line for the oil refiners. It's a scarce resource, but they simply cannot produce oil without it. I picked PrimeWest because it's a natural gas producer, located near the giant oil-sand operations.

If you'd like to invest in the great Oil-sand boom, look for natural gas producers near oil-sand operations. They are the perfect backdoor play.

Good investing,

Tom Dyson





Market Notes


DON'T EVEN THINK OF SHORTING THIS MARKET


Nearly every sane investor in the world has the same opinion on Chinese stocks: For God's sake, don't buy any now... We're in bubble territory.

The runaway train is illustrated by the unbelievable gains made in the iShares China Fund (FXI) in the past two years. This ETF consists of the best and biggest companies China has to offer. China Mobile and PetroChina make up a huge chunk of the fund. Keep in mind... these companies have market caps in the hundreds of billions – no penny stocks here. The love of Chinese assets has pushed up these blue chips 261% in the past two years. A move like this only happens in bubbles.

When will it burst? That's anyone's guess. But the Chinese government estimates its citizens hold more than $2 trillion in savings. While communists have never been known for keeping accurate statistics, it's safe to say the Chinese have plenty of air to blow this bubble bigger.

When considering a short sale of this country, keep in mind: A group of market participants willing to buy assets at 50 times earnings is not rational... and will have no problem justifying a valuation of a 100 times earnings.



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