Cramer has two speculative plays down in Venezuela to make money off of. He thinks the nationalizations have already happened and the bad news is baked in. If you are a ‘safety and stability’ stock investor you might want to stop reading here. This strategy will result in one of two things: Rags to Riches OR the Boulevard of Broken Dreams.
Harvest Natural Resources (NYSE:HNR) focuses on 3 small fields in Venezuela. The deal they made isn’t as bad as it looks, they have a deal through 2026 and now got smaller rights to 3 more fields. He thinks there is even a shot that they could get the concessions that Exxon Mobil (XOM) and ConocoPhilips (COP) walked away from. Two-thirds of these reserves are not proved. He can’t justify more than a $15.00 price to pay, but he doesn’t think that it will be expensive until $15.75.
Cramer thinks the one steel stock in Venezuela that is safe is Ternium (NYSE:TX) because it is an Argentinian compay rather than a U.S. company. Chavez likes Argentina, even if he hates us. Ternium is in talks to get a deal to keep it from getting nationalized. This one also operates elsewhere in Latin America.
Well, one thing is probably a lock: these are indicated higher after Cramer’s comments……. BUT, there are so many places you can invest that you don’t have to take this sort of risk. If I was going to follow either of these, I would MUCH rather be investing in an Argentinian company in Venezuela rather than a fellow company from my own Gringolandia doing business in Venezuela. BUT (again a but), putting your money down there is like giving a huge loan with no collateral and without a legal contract. The exception is that you could get hosed in Venezuela even with the collateral and the legal contract. Remember the Golden Rule: He Who Has The Gold Rules! Right now Chavez is the one that has the gold.
Jon C. Ogg
July 6, 2007
Jon Ogg can be reached at email@example.com; he does not own securities in the companies he covers.