Gold and Energy Advisor: Gold, Oil & Energy Markets Investment Research
James DiGeorgia, Mr. Macro
- Chief Editor -
Mr. Macro
Geoff Garbacz, Mr. Micro
- Chief Strategist -
Mr. Micro
Dan Hassey, Mr. Retirement
- Senior Stock Analyst -
Mr. Retirement

Gold and Energy Advisor's Real Wealth

Real Wealth #110  07/12/2007



ROUND #1:

CNBC's Jim Cramer

versus

James DiGeorgia

 

He's richer, he has a TV show but I'm better looking and more than two years ahead of him on his latest oil and energy recommendation.

Dear Subscribers,

I had a good laugh the Tuesday night. While visiting a friend at his home I noticed he had his 52"" Sony Flat Screen in the family room tuned on Jim Cramer's Mad Money show.

 

It caught my attention because Jim was pontificating about oil companies. Low and behold he was recommending ConocoPhillips (COP-NYSE). 

 

According to his analysis the company at $85 a share is cheap and he predicts the share price of COP could hit a $120 a share by the end of this year.

 

My friend says to me: You should watch Cramer he makes some great stock recommendations. What do you think about ConocoPhillips?

 

I love it and own it and have been recommending ConocoPhillips since December 17, 2004 and cost basis on the original recommendation, and using our call writing options premium strategy, is just $29.54 a share.

 

"Wow is that true, how did you know two years ago that COP would become so hot?" my friend asks?  Then he leans forward and says should I listen and buy shares NOW of ConocoPhillips?

 

Should you take Cramer's advice and load up on oil stocks including ConocoPhillips at these much higher levels?

 

A great many investors hang on Jim Cramer's recommendations with fanatic loyalty even when they fall like rocks. His best bet for 2007 NYSE EURONEXT (NYSE) which traded as high as $110 after his recommendation and which is now trading at ouch $80 a share today. Talk about pain. It's still his #1 pick.

 

My pointing out his infallibility isn't a cheap shot. How can you not like Jim Cramer, he's the one man band of financial analysts. He educates and entertains but keep in mind like a good circus, side show don't take everything he says at face value. The format of the show guarantees you won't get the whole picture on any short, long or hold recommendation... 

 

In the case of ConocoPhillips we think Cramer's right. It is a bargain.

 

However, with all the reasons Cramer gave for recommending COP he left out the biggest reason to load up and neglected to give you a strategy for the best way to buy shares.

 

Cramer missed the big reason to buy and hold COP. Bottom line: you're pay just slightly less than $5 a barrel for its oil and oil equivalent reserves. Many companies are selling for $13 to $21 a barrel.

 

See our June 29th, 2007 Update for a full listing.


We think its just a matter of time that the hedge fund and big money managers figure out that oil isn't likely to fall back under $40 a barrel the next few years and the risk of $85 even $100 oil is much more likely. This means were very likely to see the "acceptable valuations" established by Wall Street's most respected institutional analysts double from current levels for these companies if not by the end of the year, certainly in the next 12 months.

 

We also believe that the $15 billion buy back announced by ConocoPhillips is a SIGNAL that should tip you off that other large oils including oil service companies like RIG, NE, DVN and others will soon follow suite with REAL very substantial buy backs. This will send the crowds of mercenary growth, high Alpha and momentum investors and traders in mass into these stocks.

 

If you're looking to buy or add shares of COP I recommend writing 1 August $85 puts for every hundred shares you want to buy. Many IRA plans will allow you to write a put if you maintain the cash in the account to buy the share if tendered. I expect we'll see $83-$84 a share on a pull back sometime in the next few weeks but right now because COP is trading at almost $88 a share you and take in $195 for ever option you write.

 

Want to buy 500 shares? Writing 5 August COP $85 Option PUTS will deposit $975 in your account and if COP closes below $85 on July 20th, later next month, you get the shares at $85 and get to keep the cash. Yes, you'll be tying the money needed for the 500 shares for about six weeks. If the share price doesn't close below $85 and you don't get to buy the shares at $85 but you still get to keep the $975 and you can do it again after the August $85 Puts expire and perhaps pull in another $975.

 

Best Wishes,

 

James DiGeorgia

The proud Publisher and Editor

Gold & Energy Advisor

 

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