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Fitz-Gerald's Finds

03/17/2006 12:00 am EST


Keith Fitz-Gerald

Chief Investment Strategist, The Money Map Report

"Back in 2002, I predicted that oil would one day top $105, which got me laughed out of more than a few boardrooms," notes Keith Fitz-Gerald, editor of the exceptional The Skeptical Investor. "We're not there yet, but we're a heckuva lot closer."

"Although oil prices have been dropping lately, the big money is drawing a line in the sand in the low $50s for a barrel of oil. Bear in mind that nothing has changed in the big picture. There is only so much oil available, and any supply interruption whatsoever is going to easily overcome that kind of slim margin and cause prices to skyrocket. Professional traders are quietly anticipating sharp moves higher in the coming months.

"I still think we'll hit $105 a barrel in the not-too-distant future, even though it won't be a straight shot up. But higher energy prices are a monumental and irreversible trend that will continue for the next 50 years or longer. The reasons are quite simple: exploding worldwide demand and dwindling supply. End of story.

"In our view, nuclear energy is poised for a comeback, and no amount of tree hugging is going to stop it. It's efficient, cost-effective, and with advances in technology, it's also safer than ever before. Cameco (CCJ NYSE), the best-of-class uranium company, is the dominant player in the nuclear fuels industry. Given that we're following a classic 'picks-and-shovels' strategy with regard to the re-emergence of nuclear power, it's a company that we want to own long-term. But we caution that it is trading in the nosebleed section even after its stock split in late February.

"For those familiar with options, we offer a strategy to reduce your cost of CCJ. We'd sell the January 2008 LEAPS $27.50 put for $3.00 or more. Should CCJ drop down to $27.50 per share and your option get exercised, this will give you a basis of $24.50 per share, which is a considerable head start on future profits. If CCJ never drops to $27.50 from here, we keep $3 per lot and collect the equivalent return of 10.9%.

"While we wait for nuclear power to come on line, I also want to encourage you to take at least a small position in alternative energy via the WilderHill Clean Energy Portfolio (PBW ASE). As part of coming to terms with more expensive energy, the world is looking to alternative power sources, and that's what this play is all about. It's kind of like icing on the cake and intended to fill the gap between the immediate higher costs of energy and the long lead times required until viable alternatives are available. Buy under $17 wtih a 15% stop loss in place to protect your downside."

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