Geopolitical Hedges

02/10/2006 12:00 am EST

Focus:

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

Louis Navellier, long one of the top performing newsletter advisors, sees energy as a way to benefit from high energy prices and as a hedge against geopolitical risk. Here, the editor of Global Growth, looks at energy plays in Canada, China, and Russia.

"Canada’s Conservative Party was the big winner in the recent national elections. The new Prime Minister, Stephen Harper, will undoubtedly help boost Canada’s relations with the US. But the bottom line is that the US needs Canada’s oil, specifically, Alberta’s tar sands and LNG facilities to boost natural gas imports. We also need some of Canada’s excess hydroelectric power.

"The best hedge against rising oil prices is to make sure that you hold energy companies, such as our PetroChina (PTR NYSE), China’s largest oil company. PTR has reportedly received government approval for a $1.5 billion project to build two pipelines, which will transport refined oil from northern and central China, thereby linking crude supplies from Russia and Kazakhstan. The pipelines are expected to be operational in 2008.

"In addition, PetroChina is reportedly planning a bid for Russian oil company, OAO Udmurtneft, in a joint effort with its parent company, CNPC, China’s largest oil producer. Udmurtneft owns 26 oil fields in Russia, valued at an estimated US$3 billion. PetroChina and their Indian counterpart, ONGC, are likely to cooperate in the bidding, as they did when acquiring Syrian oil assets in late 2005.

"Russia’s Tatneft (TNT NYSE) remains strong due to the rising price of oil. High-cost producers like Tatneft enjoy a greater increase in profit margin when oil rises. Most analysts have missed the fact that high oil prices benefit Tatneft more than most other companies. Since higher oil prices are probably going to be here for a while, the oil companies that benefit most are those like TNT, which have more leverage on the price increases at a higher level

"The prospect that the UN and many other countries may impose sanctions on Iran may keep oil prices high for much of this year, if not longer. This is incredibly bullish for Taftnet. If Iran's oil is cut off from the world, Europe, the US and the rest of the world, will be increasingly dependent on Russia and other major oil producers to make up the difference. Meanwhile, we’d note that Tatneft just won the Ukrainian ‘Brand of the Year 2005’ award.

"There are also a lot of quality Canadian stocks that I follow, namely Brookfield Asset Management (BAM NYSE), Cameco (CCJ NYSE), Canadian Natural Resources (CNQ NYSE), EnCana (ECA NYSE), Imperial Oil (IMO ASE), Suncor Energy (SU NYSE), and Telus (TU NYSE). Thanks to the strong Canadian dollar, combined with soaring oil prices, the average Canadian stock gained 40% last year, in US dollars. As long as energy prices stay high and the Canadian dollar remains strong, many Canadian stocks will continue to be great investments."

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