Taipan Online: Hotline

Although this week kicked off with George Bush inking the new Energy Bill, worth around US$14.5 billion (double what he asked for), it also saw oil prices gallop to fresh record highs over US$67 a barrel.

The spike comes amid concerns about the US Embassy closure in Saudi Arabia (the world’s largest oil producer) over security threats and fears that multiple US oil refiner shutdowns will reduce supply.

Traders worry that if terrorists strike against US positions in Saudi Arabia, they will probably also strike against oil production plants there, forcing refinery shutdowns that would reduce supply.

Oil prices are rising even though the OPEC oil cartel said it had increased production by 300,000 barrels a day in the past two weeks to 30.4 million barrels per day.

But the market seemingly prefers to focus more on the streak of problems plaguing US refineries lately. More than half a dozen, including Exxon-Mobil, BP, Valero Energy, and ConocoPhillips, have experienced unplanned outages over the past two weeks, reducing output of consumer end fuels like gasoline. Since March, the companies have operated at more than 90% of capacity, in hopes of meeting surging demand for gasoline and diesel. That, coupled with a decade of under-investment, and with no new refineries having been built in the US for over 30 years, means many plants are now finally starting to fail.

To add to the turmoil in Saudi Arabia, Iran, OPEC’s second-largest oil producer, also tossed a wrench in the works by saying it has resumed work at its uranium conversion plant, risking sanctions by restarting its nuclear program.

Nevertheless, the energy bill is a great first step at lessening our “oil problem” and ends a yearlong congressional standoff on national energy policy. Although the bill does not provide instant relief from rising oil prices, it does at least provide some alternative options.

With that said, let’s get to the good stuff: Taipan profits and gainers! A nice way to roll into the weekend.

CASHING OUT ON CHINA

First up, a double dose of profits, courtesy of WaveStrength’s Michael Wiles.

If you remember from your March 2005 Taipan issue, Michael recommended a buy on the iShares FTSE/Xinhua China 25 Index Fund (FXI:NYSE). His advice was to buy the stock at/under US$57.50 with a 12-month price target of US$62.92.

The official entry was US$57.50 on March 1 and Michael is happy to report that, after having held this position for only half the expected time, this play has exceeded his original expectations.

FXI closed today at US$64.95, and Michael feels the time is right for you to take your 13% gains off the table.

WHEN BEST BUY IS THE BEST SELL

Michael’s other round of profit-taking for you involves his recent play on Best Buy (BBY:NYSE) that appeared in your recent July Taipan Bonus Issue.

Back then, Michael discussed Best Buy’s impending decline and the best way for you to turn a profit on it. Specifically, he recommended the BBY Jan ’06 55 Puts (BBY MK) at or under US$1.70. You should have been able to get in around this price. On Thursday August 4, the stock split caused some confusion on the options chains, but at the close today, the options had hit US$6.80.

Again, Michael believes you should take your profits and run at this point. Sell your BBY Jan ’06 55 Puts (BBY MK) at or above US$5.90.

DAWSON DAZZLES & CHEERS ALL ROUND FOR QUINSA

Some one may be feeling a bit foolish over at AG Edwards. After the brokerage house downgraded shares of Dawson Geophysical (DWSN:NASDAQ) from a Buy to a Hold earlier this week, the stock has continued to do what it does best: Rise!

DWSN closed today at US$30.30 – a massive 53.8% gain over Erin Beale’s original entry price of US$19.70 back on May 3 for the May Taipan issue.

No reason to sell here. Congrats and the current gains and continue to hold your shares.

Elsewhere for Erin, just over one month after recommending South American beverage company Quinsa SA (LQU:NYSE), you’re already sitting on solid 40% gains as shares closed today at US$34.67 mark today.

The company reported earnings for the first half of FY 2005, showing a 26% increase in EBITA, a 22% jump in net sales, a 28% increase in gross profit and higher volumes of beverage sales, alcoholic and non-alcoholic, across the board. LQU hit another new 52-week high of US$35.45 today on the news, and continues to successfully nail higher highs and higher lows. And this, after UBS downgraded the stock last week.

Continue to hold your shares for larger gains in the near future.

HOT…HOT…HOT: NETEASE ROARS TO 52-WEEK HIGH

Erin’s fellow Red Zoner Chris DeHaemer is also enjoying a fine run from one of his best-performing stocks.

After nailing a new 52-week high of US$81.36 on August 5, the stock continues to bath in the recent glory of fellow Chinese Internet company Baidu’s outstanding IPO last week.

From his entry price of US$37.75 on August 23, 2004, NTES’s impressive run has produced enormous gains of 105% as the stock closed today at US$77.35.

Chris recommends you hold on to this winner and let it ride. Congrats if you took advantage of the recommendation.

If you’ve taken profits on any of the above recommendations, we’d love to hear from you. So if you have a moment, please drop us a line and tell us all about it: taipan@taipangroup.com. Thanks.

That’s all for this week. Have a safe and pleasant weekend.

Martin Denholm

Executive Editor, Taipan

MMM

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