...and Inside the Inner Circle

06/24/2005 12:00 am EST

Focus:

Neil George

Editor-in-Chief, Income Publication and Products, Agora Financial

Neil Georgeis well known as the editor of Personal Finance, where he focuses on long-term portfolio development. But for more aggressive traders, he has launched the exciting new Inner Circle, designed for "intrepid investors looking to add some zip to their portfolio."

"Lyondell Chemical (LYO NYSE) is one of the nation's top producers of gasoline additive MTBE. This additive is like the asbestos of the fuel industry. Its production was mandated by the federal government decades ago but since then MTBE has been found in ground water, in the air, and in the soil around the refineries and storage tanks. Enormous lawsuits have followed and MTBE manufacturers, including ExxonMobil, have been seeking immunity for substantial liability limits against these suits. The suits have been tied up in courts for years.

"Now, however, the Energy Bill is making its way through Congress. And the MTBE liability protection that's part and parcel to the bill is the reason behind our buy. The ride will be bumpy because Wall Street never likes Capitol Hill meddling in its investments. Since Lyondell's current legal threats are about MTBE production, the company should get some serious legal relief. The legislation should get done by Congress' next recess. If the bill passes, Lyondell will get an 800-pound gorilla off its back and the stock should spike in a relief rally.

"We also recommend the Taiwan Fund (TWN NYSE), as we believe it is another opportunity that has shown up in the headlines. The saber rattling between China and Taiwan has crippled many Taiwanese stocks. However, behind the Western news headlines has been a quiet diplomatic effort by Taiwanese officials to appease the mainland. The deal works for both sides, since Taiwan is one of the biggest direct investors into China's burgeoning markets. Sovereignty issues come second only to making a buck or a yuan.

"The Taiwan Fund is a great way to play the potential rapprochement, or a reestablishing of cordial relations between the two countries. The fund is trading at a discount to NAV but once this scare is over, it should see a nice rally.We're buying and holding this closed-end investment fund for two specific reasons. First, the thawing of Beijing-Taipei relations is going to reduce or eliminate the risk discount of the local Taiwanese market and specific stocks. Second, a collection of the underlying local companies held by this fund continues to press ahead on a host of great deals. We suggest buying the Taiwan Fund up to $13.13."

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