Newsletter Watch: More speculative picks for 2008

This week, we continue our look at small-cap stocks that were selected by newsletter advisors as their favorite stocks for 2008.

Although the three investment vehicles discussed today operate in very different markets — mining, China and nanotechnology — all three have one factor in common: each of these companies earns its income from a combination of equity investments, financial and management services or royalties from other companies within their respective markets.

"International Royalty Co. (AMEX: ROY), with a market cap of $359 million, is my top speculative idea for 2008," says Adrian Day, editor of The Global Analyst.

"Mining is a tough business, with high capital costs and one in which, as the old saw has it, 'Murphy works overtime.' One way to mitigate the risk while remaining exposed to upside in resource prices is through royalties. Royalties come in all shares and sizes; they can be net or gross; fixed or sliding scale; and so on,” Day says.

International Royalty Co., he observes, has put together an extensive portfolio of over 60 mining royalties, most of which are on properties not currently in production.

Its "crown jewel," accounting for half the company's net asset value, he points out, is from royalty on the world-class Voisey's Bay nickel mine in Labrador, Canada. He adds that many of its other royalties are on gold projects, including its second most important asset, the royalty on Barrick' s Pasuca mine in Chile.

"The stock sold off recently after the company raised money for a potential purchase of the royalty division of Newmont Mining; instead the division was effectively IPO'd," he says.

But this decline, he suggests, makes ROY very inexpensive for a low-risk royalty company.

"The stock is selling at just over 10 times next year's estimated cash flow, much less expensive than other royalty companies," Day says. "As metals prices continue to advance and more of the properties on which ROY holds royalties come into production, ROY will benefit tremendously, making it a solid long-term growth story as well as ripe for a rebound from oversold levels."

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