Today's comment is by Eric Roseman, our Investment Director and editor of both Commodity Trend Alert and Global Mutual Fund Investor.

Dear A-Letter Reader:

Global investors have mixed feelings when it comes to Russian oil companies.

You can blame those mixed feelings on President Vladimir Putin. He has resurrected barriers to foreign investors and nationalized several energy concerns since 2003. Not to mention, he basically calls the shots in Russia's immensely profitable energy industry.

Russia is a modern version of distorted capitalism, a paradigm of what happens in a country when absolutism and laissez-faire economics clash. In this case, Putin decides who makes money, how much they make, and when to close the door on anyone or any entity threatening his future vision of Russia. And that vision has thus far catapulted Russia to the ranks of one of the world's richest oil and gas producers in 2006.

Commodities this decade spared Russia from utter collapse. Amazingly, Russia went from going virtually broke in 1998 to becoming a formidable natural resources powerhouse over the last four years. Today, as the world's richest commodity producer, she exports every conceivable raw material on the planet.

And Russia's truly rich today. Foreign-exchange reserves now total $252 billion dollars, her trade surplus is swelling at $140 billion and gross domestic product (GDP) is humming along at near-China levels, currently at 7.4% year-over-year through June 30. That's an incredible turnaround for an economy that was a basket case just a few years ago.

Since stocks in Moscow bottomed in late 1998, the RTS Index has skyrocketed more than 2,500% in dollars. That makes this index the best-performing bourse in the world. Plus, just last month, Russia became the largest emerging market in Morgan Stanley's distinguished MSCI Emerging Markets database. In 2006, Russian stocks have rallied another 40%, among the best performers once again along with India, China, Indonesia, and Venezuela. 

What really interests me about Russia, in addition to her enormous mineral wealth, is the massive disparity between some large-cap resource stocks and Western companies.

In October, I unearthed one such bargain - truly a formidable recommendation in my Commodity Trend Alert (CTA) investment trading service. Despite garnering 20 billion barrels of oil reserves compared to 21 billion barrels for Exxon-Mobil, this Russian energy giant still sells at a ridiculous 87% discount to Exxon-Mobil based on its stock-market capitalization.

Yes, some sovereign risk is tied to that absurd discount because Putin has a bad habit of nationalizing oil companies, but he won't touch this gem. Western interests are too deeply involved for him to tamper with it. Plus, this stock is planning a New York Stock Exchange (NYSE) offering in 2007 and I doubt Mr. Putin wants to tarnish Russia's image ahead of that very prestigious listing. Once publicly traded, Putin must leave his hands off the company.

Russia might be a lot of things. But one thing is for sure... it's home to the most compelling large-cap oil-company in the world, which at current prices, is literally the bargain of the decade for energy bulls like me.          

ERIC ROSEMAN, Investment Director
On behalf of The Sovereign Society

EDITOR'S NOTE: For a look at Eric's current CTA portfolio, along with the one oil company Putin can't touch, click here.

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