NEWS / Foreign Exchange

Full Circle

I??™m best known for dishing out advice on income stocks like utilities and Canadian trusts. But the first recommendation I ever made in this business was actually a mid-major metals and minerals producer, Freeport-McMoRan.

At the time (January 1987), Freeport was trading for about $18 a share under the symbol FTX on the New York Stock Exchange. Today, its remaining prodigy Freeport-McMoRan Copper & Gold sells for well more than $100 a share.

And that??™s not even half the story. Factoring in the myriad spinoffs, takeovers and stock splits along the way, those who bought the original Freeport in 1987 and held onto its descendants have multiplied their original investment many times.

Amazingly, those gains came despite the commodities market depression that stretched from the late 1980s until the current boom began early in the current decade. Even in this volatile market, quality wins.

Finding the next Freeport is the key goal for me as I scour the world each week for the best vital resource stocks. Not every mining or resource company is going to measure up. But with the commodity cycle on our side, the rewards for successful hunting will be even greater.

In barely four years, copper prices have quintupled while raw materials from steel to gold and platinum group metals have doubled or better. And the bull market is only just beginning.

These vital resources are the critical fuel for growth. And for the first time since the ??™70s, the world??™s economies are growing in unison. Even when America stumbles, China, India, Japan, the Middle East, Central and Eastern Europe and Latin America are picking up the slack.

I created Vital Resource Investor to be your guide to cashing in on the big cycle. In this effort, I have with me Yiannis Mostrous, our in-house expert in emerging markets, which is where a lot of the action in commodities is these days.

True, these can be volatile markets, so we??™ve tapped George Kleinman, editor of Futures Market Forecaster and a commodity investor for more than three decades, to help navigate the ups and downs along the way to mammoth profits.

Whether your motive is aggressive growth or inflation insurance, VRI??™s universe of the best base and precious metals, agricultural, water, industrial metals, steel and other raw materials stocks is your ultimate resource.

If you decide to give us a shot, you??™ll be getting in at a low price because the publisher is getting ready to raise the price very soon. Click here for a money back guarantee trial.

Also, take a look below for an excerpt from a recent VRI issue:

Relative Attraction

The steel sector is one of the most vibrant and exciting in the commodities universe, as steel has become extremely important for economic growth around the world.

As the emerging economies continue to improve, investment in construction is booming. And steel construction is the biggest area--58 percent of the steel in China is now used in construction.

Steel stocks have performed extremely well and did even better in the rally that followed this summer??™s stock market selloff. The steel stocks we recommended in an August article for Personal Finance (www.pfnewsletter.com) have posted huge gains in just a couple months.

Even so, steel companies remain reasonably valued, particularly in comparison to other vital resource sectors. Even after the recent gains, they deserve inclusion in the commodities part of your portfolio.

The dynamics in the steel industry have changed markedly in the past 15 years. For one thing, China has become the world??™s biggest consumer. In the ??™60s, the US accounted for around 40 percent of global demand. Today, that number is around 10 percent. In contrast, China is now the 40 percent player, up from a 10 percent share in 1990.

Infrastructure growth in the developing economies and energy construction are the main drivers of steel??™s success. On the latter, strong oil prices will continue to support infrastructure spending for pipelines, windmills, oil rigs and other related steel-intensive uses. Shipbuilding and growth in auto production will also be big drivers.

Apart from the growth factor, Chinese steel exports will also play a huge role on the resource??™s price. That??™s being hugely affected by China??™s internal demand.

According to a preliminary report by the Chinese government, China??™s steel export volume fell 22 percent from August to September, and exports are now at their lowest levels since February.

One major reason for the export decline is the recent reduction in the tax rebate from 8 percent to 5 percent. Others include the higher production costs that many Chinese producers face, an extremely strong domestic market for steel and high shipping costs that make overseas markets relatively unappealing to Chinese companies.

As the competition from Chinese steel diminishes, opportunities for non-Chinese companies are increasing. And we??™re starting to see the positive impact on their revenues.

As for the big cycle for steel, it??™s very much intact. The rest of Asia, the Middle East, Eastern Europe and Russia continue to grow and improve their respective infrastructure. The global economic outlook will affect the industry from quarter to quarter. But barring a full-scale global recession, economic growth will continue to support steel prices at robust levels.

My favorite stock in the sector is Mechel, Russia's second-largest producer of long steel products. It operates one major steel mill with a capacity of close to 5 million tons of output per year. Mechel operates in Russia, Lithuania and other countries in Central and Eastern Europe.

The company??™s ace in the hole is a mining business that focuses on raw materials used in making steel, primarily coking coal, iron ore, nickel and steam coal. The company??™s steel business is 100 percent self-sufficient in coking coal, 80 percent in iron ore and 50 percent in electricity.

This aspect of Mechel (i.e., vertical integration) is critical in an environment where raw materials prices continue to rise. And it should support the stock because its performance this year has been nothing less but dazzling.

Mechel is a high-cost producer, and management has worked to cut costs while improving efficiency. Those efforts have been quietly successful up to now, and we expect this to be an ongoing positive theme. And Russia??™s strong domestic demand--within and outside the all-important energy sector--is an additional advantage for the company.