Tag - Roy

Small-cap shares opened lower, pulled down by soaring crude oil prices, troubling economic data, a decline in overseas equities and a sinking greenback. At 9:52 a.m. ET, the Russell 2000 (NYSE:IWM) was off 3.25, or 0.44%, at 735.20.

Crude oil jumped to a new record high, climbing above $129 dollars a barrel amid tight stocks for diesel fuel and solid demand out of China and South America that is countering soft demand from the United States. With gasoline prices in some metropolitan areas moving above $4 dollars a gallon, another record high in crude oil will not likely be embraced by stock market traders, even if a handful of energy stocks stand to benefit.

This morning’s PPI report was a mixed bag at first glance, with the headline figure coming in at 0.2%, which was better than the forecast for a rise of 0.4%. However, with gasoline prices still soaring, that figure already seems out of date, and investors were much more concerned about a jump in the “core” PPI, which climbed to 0.4% — above the forecast for a rise to 0.2%. The core rate excludes food and energy prices, which means there are other price pressures in the pipeline to be concerned about as well. This jump in the core tightens margins for businesses and forces them to consider raising prices, which can be suicidal in a sluggish economy where consumer discretionary spending is already pinched by lofty food and energy costs.

Other economic data this morning also had a soft tone, as weekly chain store sales were off 0.4% last week, according to the International Council of Shopping Centers. In addition, the Chicago Federal Reserve National Activity Index slipped to minus . . .

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."