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I love reading emails from subscribers. And in my capacity as Chief Investment Strategist for three of StreetAuthority's most popular newsletters, I get a lot of them.

I try to answer as many as I can, and even make a point to feature some of the best reader questions in my issues. One email recently came to my inbox that I thought was worth sharing with subscribers.

I notice that the majority of companies in your portfolio are in the mining sector. Do you also cover oil and gas?
-- Tom W., Plover, Wis.


The answer is an emphatic yes. The petroleum sector has treated me very well over the years -- one of my first recommendations as an analyst was Russian oil explorer Valkyries Petroleum, which returned 186% in under a year.

#-ad_banner-#That said, there's a well-worn saying among commodities investors: "If you're not a contrarian, you're a victim." Natural resources are notoriously cyclical: When they're at a low, they're likely to go higher. And conversely, when a sector is flying high, there may be considerable downside ahead when the inevitable pullback or complete bust comes.

The oil and gas sector strikes me more as the latter these days. The United States' unconventional drilling boom has been one of the "feel good" stories of the investment world. Investors have jumped on exploration and production (E&P) stocks -- driving many of them to premium valuations relative to the value of their oil and gas assets.

That creates a situation where we could see losses ahead. If enthusiasm wanes, or problems present in the sector, lofty valuations could contract, leaving late-in investors holding the proverbial bag.

I'm therefore cautious on what I buy in this space. I have added "special situation" firms like synfuels producer Sasol (NYSE: SSL) to my portfolio, which carries a trailing yield of 4.5%. And if you read my recent essay on the potential of natural gas liquids, you know I think Sasol's dividend could grow much more once this business really takes off.

One interesting thing about Sasol is that it's actually kind of defensive -- in 2009 as corporate profits were tanking, profits from the company's core synfuels business actually increased by 30%.

But in the conventional E&P sector, I just don't see the value I'm looking for in today's share prices.

Of course, there are a few exceptions to this rule...

Out-of-the-way pockets of the oil sector like the shallow-water Gulf of Mexico are today providing great returns -- and companies here are selling very cheap. Smaller start-up firms in particular are really dominating this space. I cover a few of them in Junior Resource Advisor, my premium newsletter dedicated to fast-moving opportunities in junior commodities firms.

I continue to look for the best investments across all facets of the resource business, but the simple fact is that the value propositions are generally better in the mining space right now -- where share prices are depressed by negative investor sentiment, despite excellent business performance from many firms.

While many of the heavily-discounted miners and oil and gas firms that I find are younger companies that haven't started paying a dividend (yet), I do occasionally find some with lucrative potential.

Just this month in Junior Resource Advisor, I recommended a revenue-rich, Texas-based oil storage business that has grown its dividend 39% in just the past two years. Even better, I have good evidence to believe this company's stock could be trading at a third of what it should be worth. It's not often that you find this kind of dividend-growing investment that could triple in price.

My latest research has uncovered an even greater value play that investors can get in on now if they hurry.

My staff and I have been monitoring a rare opportunity developing in a remote mining town located in the heart of the North American wilderness. This town, which industry experts are predicting could be the first $1 trillion North American boomtown, is sitting on a rare mix of rich mineral deposits as well as a treasure trove of oil and gas.

Simply put, the early indications are that this region could explode with mining and drilling activity that could dwarf what we've seen in places like North Dakota. Here's the best part: the media has yet to catch on to this future $1 trillion boomtown, meaning more profit potential for those of us who get in early.

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