Source: Investment News Briefs Friday, July 10, 2009

Nickel was up all day, closing at its intraday high of $5.7281/lb., up 26 1/3 cents. Zinc also blasted to its intraday high of $0.6737/lb., up more than 3 cents. Aluminum gained modestly, ending at $0.6381/lb., up less than a half-cent, while lead added a penny and 2/3, to $0.646/lb.

Copper led the industrial metals higher, amid record Chinese imports and steadily declining inventories.

Also factoring in was the weaker dollar.

Word from Chinese customs yesterday was that imports of copper rose by 7% in April, as buyers replenished stockpiles. “The strength of Chinese import demand has been pretty phenomenal,” Kevin Norrish, of Barclays Capital in London. “We’ve seen that confirmed again in the import statistics.”

Inbound shipments of refined copper advanced to 317,947 tons in April—more than double imports in April 2008. China imported 1.07 million tons of copper in the first four months, according to customs data. Last year it imported just under 1.5 million tons, according to Macquarie Group London.

At the same time, inventories in warehouses monitored by the Shanghai Futures Exchange fell 4% to 33,798 metric tons from 35,389 tons a week ago.

And the London drawdown continued, albeit more modestly than in recent days. Copper inventories monitored by the LME were down 2,700 metric tons yesterday, to 333,375 tons.

Among the other base metals, “We believe fundamentals in the nickel market will start to improve by the end of the year as the market surplus declines rapidly and as the stainless steel sector enters a period of restocking,” Deutsche Bank analysts wrote.

In company news, Aluminum Corp. of China (NYSE:ACH), the largest shareholder in Rio Tinto Group (NYSE:RTP), is considering changing its planned $19.5 billion investment in the world’s third-largest mining company, Caijing Magazine wrote.

“We are indeed considering whether it’s possible to adjust our plan, but the possibility of a change is very small,” a Chinalco executive told Caijing.

Source: Base Metals All See Green

Nickel also sank all day, barely coming off its intraday lows to close at $5.465/lb., down almost 18 cents. Zinc followed a similar path, ending at $0.6421/lb., down 2¼ cents. Aluminum fell hard, giving up nearly 2¼ cents, to $0.6381/lb., while lead plunged more than 2 1/3 cents, to $0.6294/lb.

Copper led the industrial metal sector lower, as gloomy remarks about the future of the economy from Fed officials made their way into print.

The policy makers cited a “significant downside” potential for the economy, projecting that the recession will linger through this year with unemployment reaching as high as 9.6 percent. The forecasts are much more pessimistic than the Fed’s January estimates.

That led Edward Meir, of MF Global, to write that, “Some of the euphoria about an imminent recovery has perhaps gotten slightly ahead of itself,” and he predicted that copper may be in for a “further retreat.”

Also factoring in were the jobless numbers and the selloff on Wall Street, which raised questions about both the economy and the stability of the equities markets, which have seen a big runup in recent months.

Yesterday’s “setback in metals will not lead to yet another ‘buy the dip’ situation,” Meir added. The downtrend “may last for several more sessions, especially if overbought U.S. equity markets also show signs of fraying.”

Still, the stockpile situation continues to be supportive. Copper inventories monitored by the LME were down another 5,400 metric tons yesterday, to 336,075 tons.

In company news, Aluminum Corp. of China (NYSE:ACH) may take a smaller stake in Rio Tinto Group (NYSE:RTP) in order to win approval for its $19.5 billion investment, according to the Sydney Morning Herald.

Chinalco is open to letting Rio sell convertible bonds to other shareholders, reducing its planned stake from 18% to 15%, the newspaper said. That may allow the state-owned entity to avoid breaching foreign ownership rules, while placating investors angry at not being offered stock on the same terms.

Source: Base Metals Leaking Red

Zinc was very weak early but rebounded to end at $0.6648/lb., down less than a penny. Aluminum was off modestly, giving up a third of a cent, to $0.6602/lb., while lead declined through most of the day, winding up at $0.6532/lb., down almost a penny and a quarter.

Copper finished for the second straight day in positive territory, as equities showed some early life and the dollar weakened.

“The downtrend in the U.S. dollar is attracting a lot of buying interest into the broader commodity complex,” said Michael Gross, futures analyst with Optionsellers.com in Tampa, Florida.

Technicians were also at work yesterday. “There was strong technical momentum from a buy signal triggered on Monday at $2.047 a pound,” said Larry Young, of Infinity Futures in Chicago.

Sounding a cautionary note was the International Copper Study Group, which said that the world copper market experienced a surplus of 86,000 metric tons in February, compared with a deficit of 61,000 tons in the year earlier period.

Stockpiles continue to dwindle. Copper inventories monitored by the LME were off 7,350 metric tons yesterday, to 341,475 tons.

In company news, Jiangxi Copper, China’s top integrated producer, said it will meet its 2009 output target of 800,000 metric tons of refined copper, despite repair work on an oxygen generator at its main Guixi smelter.

And Aluminum Corp. of China (NYSE:ACH), the nation’s biggest aluminum producer, announced that it will sell 10 billion yuan ($1.5 billion) worth of debt to help fund its acquisitions and expansion of copper assets.

Proceeds will be used to fund the previously announced acquisitions of Peru Copper and Yunnan Copper Group, and also to help fund three copper strip projects in Luoyang, Shanghai and Daye.

Source: Base Metals Mixed

Nickel nosedived in the pre-dawn hours for the second straight day, tried to rally back but gave it up after noon, closing at $4.2547/lb., down 8 cents. Zinc bottomed at the New York open, but put in a spirited rally that kept it in the green despite some afternoon selling, as it ended at $0.5642/lb., up just over a tenth of a cent. Aluminum was modestly lower, dropping a third of a cent, to $0.6249/lb., while lead had a good day, tacking on a penny and a half, to $0.5803/lb.

Copper held up fairly well in the face of weak interest because of the dismal economic reports trickling in from around the globe.

For example, German business confidence slid to the lowest in more than 26 years this month, Munich’s Ifo institute said yesterday.

And Malaysia’s central bank said that that nation’s economy, Southeast Asia’s third-largest, is likely to undergo a “significant” contraction in this year’s first half.

“We still are not seeing more important evidence of demand picking up, which is why we think metals prices could head back lower,” said Edward Meir, of MF Global (NYSE:MF).

William O’Neill, of Logic Advisors in Upper Saddle River, New Jersey, was a bit more upbeat, saying that, “The combination of the durable goods and the housing report has been good for copper … We’re having a bit of rebound in market psychology now that we’ve seen some better economic data.”

And Tom Hartman, of Altavest Worldwide Trading in Mission Viejo, California, suggested that the “data are not a clear signal that economic recovery is already underway, but perhaps signal a bottom being laid out.”

In company news, Aluminum Corp. of China (NYSE:ACH)has won approval from Australia’s competition regulator, clearing a major hurdle for the Chinese state-controlled company’s proposed $19.5 billion investment in Rio Tinto (NYSE:RTP).

Source: Base Metals Mixed

The move surprised many analysts, as it will make it easier for Western countries to prevent Chinese companies from acquiring overseas targets and discourage other large corporations from pursuing mergers in China.

China’s Ministry of Commerce blocked the deal saying the biggest takeover of a Chinese company failed to meet the country’s anti-monopoly law and would be “negative for competition.”

“If the acquisition of Huiyuan went into effect, Coca-Cola is very likely to take a dominating position in the domestic market and the consumers may have to accept the high price fixed by the company as they don’t have more choices,” the Ministry of Commerce said in a statement.

Huiyuan Juice is a household name in China, and controls 42% of the country’s pure-fruit-juice market. Coca-Cola controls 54% of China’s soda market.

Coke could challenge the ruling under Article 53 of China’s anti-monopoly law, but the company said in a statement that it would not pursue the deal any further.  “We are disappointed, but we also respect the Ministry of Commerce’s decision,” said Coca-Cola Chief Executive Officer Muhtar Kent.

Coke launched a $2.4 billion bid for Huiyuan Juice last September. At HK$12.20 a share, the deal valued Huiyuan at a 195% premium to its market value prior to the offer. Indeed, the offer was so generous, that some investors thought Coke might actually be overpaying.

Huiyan stock was suspended 13 minutes after trading started on the Hong Kong exchange. The stock plunged a record 19% to HK$8.30 a share during that time.

Implication on China’s Overseas Acquisitions

Analysts were surprised that authorities blocked the deal, which had few economic implications and posed absolutely no threat to national security.

“This seems to me to be against China’s best interest,” Chris Ruffle, Emerging Markets Director at Martin Currie Investment Management Ltd. told Bloomberg. “It plays into the hands of protectionists who will not find it easier to block acquisitions which Chinese companies make overseas.”

Aluminum Corp. of China Ltd. (ADR: ACH), also known as Chinalco, is already facing resistance in Australia, where the company is trying to finalize a $19.5 billion tie-up with Rio Tinto PLC (ADR:RTP).

Australia’s Foreign Investment Review Board is considering the deal amid political opposition that doesn’t want to see key mining assets fall into foreign hands.

Under terms of the agreement, state-owned Chinalco would pay $12.3 billion for a piece of Rio’s iron ore, copper and aluminum mining assets, and $7.2 billion for convertible notes that would double its stake in Rio to 18%.

“I think we should be selling the milk, not the cow and in this case, the minerals, not the mine,” independent senator Nick Xenophon said Wednesday on Australian radio.

Senator Barnaby Joyce, an Australian politician who took out television ads on Tuesday urging the blockage of the Chinalco deal, Reuters reported.

“The Australian government would never be allowed to buy a mine in China. So why would we allow the Chinese government to buy and control a key strategic asset in our country,” the ad said. The ads aired in the capital of Canberra and Joyce’s home state of Queensland, where Chinalco will mine new assets.

Chinalco’s bid for Rio Tinto is just one of many overseas acquisitions being made by Chinese companies, as the nation scrambles to lock in long-term supplies of resources at low prices.

In February, China Minmetals made a $1.7 billion (A$2.6 billion) bid for OZ Minerals (ASX:OZL), the world’s second leading zinc miner. Hunan Valin Iron & Steel Group Co. quickly followed that deal with an agreement to buy $793 million (A$1.2 billion) worth of shares in Fortescue Metals Group Ltd. (ASX:FMG), which has significant iron ore holdings in Australia’s western states.

In February, China Minmetals made a $1.7 billion (A$2.6 billion) bid for OZ Minerals Ltd., the world’s second leading zinc miner. Hunan Valin Iron & Steel Group Co. quickly followed that deal with an agreement to buy $793 million (A$1.2 billion) worth of shares in Fortescue Metals Group Ltd., which has significant iron ore holdings in Australia’s western states.

“I think the Coke decision will backfire on China,” an unidentified dealmaker told the Financial Times. “It will embolden nationalists in countries like Australia, who are unhappy with all these resource deals.”

Source: China Blocks Coke’s Bid for Huiyuan, Jeopardizing Resource Deals in Australia

As Coke’s third largest market – trailing only the United States and Mexico – China is already a centerpiece of the company’s global growth strategy. When the company announced better-than-expected fourth-quarter results last month, it reported that China jumped 29% last year, while U.S. sales actually fell by 1%.

So it’s no surprise that China will overtake both Mexico and the United States to become the company’s largest market by 2018, Coke President and Chief Executive Officer Muhtar Kent told The Financial Times.

The $2 billion Coke has earmarked for China includes $90 million for a research-and-development center in Shanghai, the financial center on China’s East Coast. It also includes capital for new production plants, distribution infrastructure, and sales and marketing. However, it does not include Coke’s pending buyout of China Huiyuan Juice Group Ltd., China’s largest juice company.

Coke launched a $2.4 billion bid for Huiyuan Juice last September. At HK$12.20 a share, the deal valued Huiyuan at a 195% premium to its market value prior to the offer. But even though the deal is generous by most standards, government approval is still pending.

Huiyuan Juice is a household name in China, and controls 42% of the country’s pure-fruit-juice market. Regulators are debating whether a partnership with Coca-Cola – which controls 54% of China’s soda market – would be in violation of newly enacted monopoly laws. PepsiCo Inc. (PEP) has just a 31% share of China’s soda market.

The buyout is further complicated by strong nationalistic feelings, similar to those sparked in the United States when InBev NV went public with its bid for Anheuser Busch. However, many state-run Chinese companies have aggressively pursued foreign targets, which could make it hard for China to close the door on Coke.

In Australia, for instance, the government has a few Chinese investments coming under review:

• Hunan Valin Iron and Steel Group Co. is attempting to expand its stake in Fortescue Metals Group Ltd. to 17.4%.
• China Minmetals Corp. has launched a $1.7 billion bid for OZ Minerals Ltd.
• And Aluminum Corp. (ADR: ACH) of China plans to invest $19.5 billion in Rio Tinto PLC (ADR: RTP), the world’s third-largest mining company.

If Beijing sends Coke packing, it could send a message to the rest of the world that China plays by different rules at home than it does abroad. Many investors are also waiting on the Coke deal as a barometer of China’s attitude towards inbound M&A deals, and Beijing’s willingness to cooperate.

The deadline for the deal’s completion – March 23 – is a little more than a week away. And while China Commerce Minister Chen Deming has said that Beijing’s decision “will not be influenced by any (external) factors,” some analysts think Coke’s recent announcement could help tip the scales in its favor.

“Coca-Cola’s investment is a positive for the Huiyuan acquisition,” Kevin Luo, a consumer goods analyst with Guotai Junan Securities HK Ltd., told Bloomberg News. “This investment will help create jobs, which would obviously be welcomed by the government, so even though it won’t have a direct impact on the acquisition’s approval, it can’t hurt.”

A recent government survey showed that slightly more than 15% of China’s 130 million migrant workers – about 20 million people – had lost their jobs and returned to the countryside by the start of the Chinese Spring Festival on Jan. 25.

Regardless of the deal’s outcome, CEO Kent says Coke has only “scratched the surface” of the Chinese market and will continue to further its presence in the region.

“Coca-Cola is proud to be a long-term partner of China, and our commitment and confidence in China never wavers,” Kent said.

Long History

Coke has a long history in China. The company first opened bottling plants in Shanghai and Tianjin in 1927. A third plant opened in Qingdao in 1930, according to the Asian Institute of Management’s AIM Center for Corporate Responsibility.

The company re-entered China in 1979 – after a three-decade absence – following the re-establishment of relations between China and the United States. In fact, Coca-Cola was the first U.S. consumer product to return to that promising Asian market.

It had its first new plant up and running in China a year later. By the end of the 1990s, it had several dozen plants and bottling operations in that market.

Coke Rides International Growth to Profit

In announcing the better-than-expected results last month, Coca-Cola reported its ninth-straight quarter of double-digit earnings per share (EPS) growth and third straight year of meeting or exceeding its long-term-growth targets. Excluding one-time items, the Atlanta-based company’s 64-cent EPS represented a 10% gain from last year’s fourth quarter.

For all of last year, cash flow from operations was $7.6 billion, an increase of 6% from the $7.1 billion recorded for 2008.

And at a time when many U.S. companies are cutting their dividends – or eliminating them altogether – Coke boosted its payout by 8%.

“Simply said, we were built for times like these,” Coke CEO Kent said during a conference call. “We enter 2009 with the same mindset as one year ago: Deliver on a consistent set of strategies and initiatives that provide us a disciplined road map to operate in the best consumer business in the world, a business with significant long-term opportunities.”

A large part of Coke’s growth can be attributed to the company’s international sales, which – with a boost from China – delivered 6% growth for both the fourth quarter and full year.

“Because 75% of the company’s sales come from outside the United States, this is the kind of stock that’s worth owning long-term,” Money Morning Contributing Editor Horacio Marquez said in a recent ‘Buy, Sell or Hold’ column. “So, if you are worried about the housing meltdown and the prospects for the U.S. economy, this soundly-managed U.S. company already gives you global diversification in the places that matter most today – the emerging markets.”

Source: Hot Stocks: Coke’s $2 Billion China Play Will Add Fizz to its Profits

This stock is just waiting to explode. He recommends you take advantage of this investing opportunity and says, “because of its strong dividend policies, investors will be well compensated while they wait for that oil-price rebound.”

This from Horacio:

In the face of the global financial meltdown, the price of oil has plummeted from a record high of almost $150 a barrel in July to less than $40 recently. And now it seems to be bottoming.

Clearly, this isn’t the precise moment to call a market bottom, but it is reasonable to think about a bottom around this range for a few reasons.

For starters, the forward curve of oil futures prices is showing a very marked upward slope, known in the commodities business as a forward curve in “contango.”  This means that – the farther out we go – the higher and higher oil futures prices climb. To see what we mean, let’s take a look at the projected price of oil as depicted by this graph.

A futures curve as upwardly skewed as this one provides a great opportunity for profits:  One can just buy oil today, sell it forward and hold it until December 2016 and make a guaranteed rate of return of about 62%.  In a year, you can make about 11% by just buying now, holding it and delivering in a year.  If you add some leverage to the transaction, you can make a nice return.

Some sophisticated players are doing just that: They’re buying oil, and are holding it in a tanker in port – with the obvious intent of capturing these profits.

However, this very favorable contango arbitrage is not going to last for long, as more players have been jumping into it, thus flattening the futures curve with time.  It is easy to see that, at some point, as oil gets absorbed into storage, and the curve gets inverted, the speculative players that shorted oil by selling futures long ago without having production or physical oil will be squeezed into covering at much higher spot prices.  This spike in spot prices situation will develop in less than a year, as demand recovers.

The slope of the curve also indicates widespread expectations for inflation.

From Stimulus to Inflation

The U.S. government has launched a huge stimulus package and its plan for a $3.6 trillion budget for fiscal 2010 will elevate the fiscal deficit to a staggering $1.75 trillion this year – a numbing 12.3% of gross domestic product (GDP).

And we have yet to deal with the massive social-security and health-care entitlement programs, which pose a huge fiscal threat ahead.

The financing of the announced deficits will come through issuance of U.S. Treasuries, which means that the U.S. Federal Reserve will have to monetize the debt. That is, the U.S. central bank will have to print money in order to make it available to buy the debt, since the level of issuance is so high that foreign buyers will not be able to purchase all the debt.

In addition, the Fed has already been very busy expanding its balance sheet in order to pump liquidity into the markets to buy mortgages and other assets. And it has already lowered its benchmark Federal Funds rate to a range of 0.00%-0.25%.

Why are the Fed and the government so intent in stimulating the economy?

The nightmare scenario for any central bank is falling into the so-called “liquidity trap” – a situation that exists when an economy’s asset prices enter a deflationary spiral and people reach the conclusion that by merely sitting in cash, even at a zero interest rate, they are getting richer by the day.  In that situation, monetary policy becomes ineffective, since rates are already at zero, and since it is very difficult to get out of that deflationary spiral.

That is precisely what happened in Japan during its “Lost Decade.” By the time the Japanese figured out that they needed to do something very dramatic in terms of stimulus, it was too late. The drop in prices had already created too many losses in the banking system and taken the entire system into bankruptcy.

Therefore, the theory goes, very aggressive monetary and fiscal action is needed right at the outset, in order to prevent the deflationary spiral and to actually generate some inflation.  At the same time that the United States, at the epicenter of the global crisis, is acting in this manner, countries around the rest of the world, which have been affected to different degrees, have launched their own stimulus initiatives.

China’s Stimulus Points to Strong Global Demand

China, which is at the forefront of global commodities demand, is of particular interest.  China needs to grow its economy at a minimum rate of 8% a year in order to employ the 18 million workers that join the labor force annually.  This is an imperative for a country that has dictatorial government, in order to avoid massive unrest.  That’s why in November, Beijing announced a $585 billion (4 trillion yuan) stimulus plan. It’s also why the country is taking such aggressive steps to assure access to supplies of key commodities.
Since then, the government has been aggressively buying long term access to commodities in such countries as Brazil and Australia.

Aluminum Corp. of China (NYSE ADR: ACH), otherwise known as Chinalco, has invested $19.5 billion in Rio Tinto PLC (NYSE ADR: RTP) to acquire stakes of up to 50% in nine of Rio’s mining assets.

China also struck a deal with Brazil’s Petrobras (NYSE ADR: PBR) for a long-term supply of oil.

China Development Bank, one of China’s largest state-owned enterprises, agreed to lend $10 billion to Petrobras for its ambitious deepwater-development program in order to ensure a long-term daily supply of 160,000 barrels oil. That followed a similar deal with two Russian giants. China Development Bank lent $15 billion to OAO Rosneft Oil Co., Russia’s state-owned oil company, and $10 billion to the Russian state pipeline monopoly Transneft (PINK: TRNFF). In return for the needed financing, Russia agreed to supply China with 15 million tons of oil annually for 20 years.

Hence, the outlook for commodities – given easy global monetary and fiscal policies, and a reflationary bias – is very favorable, and we are going to take advantage of it.

Enter Diamond Offshore Drilling Inc. (NYSE: DO).

Drilling for Profit

Diamond Offshore is the world’s second-largest driller by market capitalization, right after Transocean Ltd. (NYSE: RIG).  It has 31 floating rigs: nine sophisticated deepwater semi-submersibles, one drill ship for very deep water, and 21 other semi-submersibles.  In addition the firm owns only 13 jack-up rigs, of which only seven are in the Gulf of Mexico.

What I like about Diamond Offshore is its conservative, shrewd management and its commitment to shareholders.  The latter is especially ensured because of the situation of its controlling company, the New York conglomerate Loews Corp. (NYSE: L), which owns 54% of the Diamond Offshore’s stock.

Loews, run for half a century by the Tisch family, initially acquired Diamond Offshore’s assets in an opportunistic transaction in 1992.  It then sold 30% of the company to the public in 1995 and later acquired Arethusa (Offshore) Ltd. in 1996, using stock, a move that reduced its participation to the current 54%. Since that time, Diamond Offshore has been using its ample cash flow to repurchase shares from public hands.

Diamond Offshore, also referred to as DO, has been managed very wisely.  As the world’s No. 2 contract driller, DO has concentrated on the higher-priced equipment, that is, the semi-submersible rigs, which operate in deep waters.  And deep water, which require that higher-priced equipment, is where the biggest action is.

And since the specialized deepwater equipment is all taken, DO’s mid-depth equipment benefits because it can be adapted for use on bigger projects.

DO has minimized its exposure to jack-up rigs (those that rest on the ocean floor) and especially to work in the Gulf of Mexico, which has more competition and lower daily rates.

No wonder that DO’s fourth-quarter results handily beat analysts’ consensus estimates of $2.34 per share by posting operating earnings per share of $2.53.  Revenue also beat expectations, showing a 1% increase over the prior quarter.  The company also realized higher day rates and higher utilization rates.

These are all indications of strong management execution.  What is impressive about DO is that the company used the run-up in oil prices last year to enter into long-term contracts at very high prices, registering an impressive $10.3 billion backlog.  That gives Diamond Offshore a great earnings visibility going forward.

But the upside does not stop there.

There is a special situation in the making, because the Loews Group owns CNA Financial Corp. (NYSE: CNA), an insurance company that is trading at half of its book value.  You see, insurance companies have been hit hard financially by markdowns in their fixed-income and hedge-fund holdings, but Loews invested $1.25 billion in CNA last fall in a move to improve the company’s balance sheet.

And in order to be ready to defend debt ratings, a conservative management like Tisch has all the incentive in the world to keep maximizing Diamond Offshore profits to support CNA – should it be needed despite CNA’s current strong liquidity and financial flexibility.

DO recently paid one of its regular special dividends of $1.85 a share, bringing the dividend yield to almost 13%.  If this dividend is safe – and we believe that it is – this is a winning strategy for the group, given the current financial environment, and it will greatly help to maximize profits and cash flow from Diamond Offshore.

Mark Urness, a friend of mine at Calyon Financial, one of the leading energy research specialists on Wall Street, concurs with our assessment of this sky-high dividend. He estimates that DO will continue to offer the 12.5% dividend yield, which is unparalleled in the oilfield-services segment. We, like Mark, expect the company to distribute $8 a share in 2009 in the form of both the regular and the special dividends that DO has been using.

DO has been extremely disciplined with costs and with new investments, maximizing free-cash flow to almost $900 million last year.  In fact, with the ample backlog at higher prices of the contracts signed, DO should increase its free cash flow and net income to about $1.4 billion to $1.5 billion in 2009.

DO’s profit margins are impressive – and exorbitant – thanks to the shortage in rigs: Gross margins are 64% and operating margins are 54%.

These margins are likely to keep growing as management continues to execute thoroughly and oil prices rebound.  This strong growth in revenue and earnings – driven by DO’s savvy positioning in deepwater and mid-water rigs, and bolstered by rebounding oil prices thanks to global monetary and fiscal conditions – will surely help deliver much higher multiples than the meager six times earnings that Diamond Offshore’s shares are currently trading around these days.

Diamond Offshore’s shares closed Friday at $55.58. They are down 62% from their 52-week high of $147.77.

This cash-rich, profit-fountain company is a resounding “Strong Buy,” as its stock is waiting to explode to the upside.

Recommendation: Buy Diamond Offshore Drilling Inc. (NYSE: DO), a top player in its sector, and a company that is poised to capitalize on a projected resurgence in oil prices. Because of its strong dividend policies, investors will be well compensated while they wait for that oil-price rebound (**).

(**)  Special Note of Disclosure: Horacio Marquez holds no interest in Diamond Offshore Drilling Inc. (NYSE: DO).

Source: Buy, Sell, or Hold: Profit From the Projected Oil-Price Rebound With Diamond Offshore

Money Morning first reported in January, that China was building stakes in some of the world’s largest natural-resource companies, which have been made vulnerable by depressed commodities prices, tumbling profits and falling stock prices. In the scant few weeks since that Money Morning report was published, Aluminum Corp. of China Ltd. (ADR: ACH), or Chinalco, has invested $19.5 billion in Australian/British mining giant Rio Tinto PLC (ADR: RTP), and China Minmetals Corp. acquired Australian zinc miner Oz Minerals Ltd.

China Development Bank has been particularly active. Earlier this week, the bank lent $15 billion to OAO Rosneft Oil Co., Russia’s state-owned oil company, and $10 billion to the Russian state pipeline monopoly Transneft (PINK: TRNFF). In return for the needed financing, Russia agreed to supply China with 15 million tons of oil annually for 20 years.

China Development Bank struck a similar deal with Petrobras Friday, agreeing to loan the Latin American energy giant $10 billion to help finance deepwater oil exploration off the coast of Brazil.

Oil exploration will be carried out with the participation of Sinopec (ADR: SHI), the Chinese state oil company, the Macauhub reported.

The contract will be finalized within the next two months so it can be signed when Brazilian President Luiz Inácio Lula da Silva visits China in May, according to Petrobras Chief Executive Officer Sergio Gabrielli.

In addition to the exploration partnership, the deal signed between Petrobras and Sinopec includes the supply of 60,000 to 100,000 barrels of oil per day in the current year. Petrobras also signed a memorandum of understanding with state company China National Petroleum Corporation (CNPC) for the supply of 40,000 to 60,000 barrels per day.

Brazil is necessarily the country that comes to mind when taking inventory of the world’s top oil producers. It currently has about 12 billion barrels of proven reserves, but that figure could grow substantially now that a number of very rich deposits have been found off Brazil’s shores.

Petrobras happened across the second-largest oil find in two decades last year when it found between 5 billion and 8 billion barrels of untapped light oil in the Tupi basin. Even more impressive are the unofficial figures from a new reservoir, known as Carioca. That field could hold 33 billion barrels of oil and gas, which would make it the world’s largest discovery in at least 32 years.

With discoveries like these Brazil, currently ranked 13th on the list of the world’s top oil producers could, could easily move into the top ten.

The only problem with the Tupi and Caricoa oil fields is production costs. The Carioca discovery, for instance, is located 170 miles offshore, more than 6,000 feet under the surface of the water, and is trapped beneath a shelf of salt 500 miles long and 125 miles wide.

Developing oil fields such as these will be very costly and with crude oil trading below $40 a barrel financing is imperative. In that sense China couldn’t have timed its investment in Petrobras any better.

Petrobras said it plans to invest $174.4 billion from 2009 through 2013, compared with the $112.4 billion planned for investment for 2008-12. The company will invest $28.6 billion in 2009 alone.

In 2008, trade between China and Brazil totaled $36 billion making China Brazil’s second largest trading partner.

Source: China Continues its Commodities Binge with Brazilian Oil Deal

• Widespread foreclosures caused home prices to fall in 134 U.S. metropolitan areas. Foreclosure filings eclipsed 250,000 in January, their tenth straight month above that figure, Bloomberg reported.

• Aluminum Corps of China Ltd. (ADR: ACH), China’s state-owned aluminum group, will invest $19.5 billion in debt-heavy Australian mining company, Rio Tinto PLC (RTP). More than $12 billion will be spent on mining assets and the rest will buy bonds convertible into shares, Reuters reported. The deal will give China unprecedented access to much-needed commodities and raw materials.

• Media conglomerate Viacom Inc. (VIA) said its fourth-quarter profit fell 69% as the recession sapped advertising revenue. “It is clear that while as cable network owners we are in a more favorable media segment than most, advertising (comparisons) are likely to get worse before they get better,” Chief Executive Philippe Dauman said on a conference call, the Associated Press reported.

• Fourth-quarter profit for Coca-Cola Co. (KO) fell 18%, but beat analysts’ expectations. The company reported net income of $995 million, or 43 cents a share, down from $1.21 billion, or 52 cents, a year earlier. “They’ve been very focused on taking costs out now that they have a strong product portfolio,” Erin Smith, an analyst with Argus Research in New York, told Bloomberg.

• Sources told Reuters that General Motors Corp. (GM) is talking with China’s SAIC Motor Corp. about selling part of its stake in their decades-old joint venture. The 50-50 venture builds and markets Buick, Cadillac and Chevrolet models in China.

• A $27 billion (A$42 billion) stimulus plan was rejected by Australia’s Senate yesterday (Thursday). Australia is heading toward its first recession in 18 years. Adamant on passing the stimulus, the government will make further concessions before the measure is voted on again, Bloomberg reported.

Source: Global Investment News Briefs Friday, February 13th, 2009