At times of political unrest – especially in the Middle East – there are two go-to assets…

Gold and oil.

You know the gold story. And you know our view on it. But what about oil?

Our view is that energy assets are set to be one of the best performing asset classes this year. That includes oil, natural gas and maybe even uranium.

And in a moment, we’ll show you two ways to make the most out of rising energy prices… without using risky investments such as futures or CFDs. First, just why are we so bullish on the energy story…

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Yesterday your editor had an appointment in town with the MD of a small Australian oil and gas explorer.

That’s why we weren’t able to grace you with our presence in Money Morning yesterday, although as we’ve noted, Shae more than ably filled in the gap with her article on credit cards.

The company in question was interesting because it was, well, uninteresting. Over the past year or so as editor of Australian Small Cap Investigator, we’ve looked at a lot of energy companies.

We’ve mainly concentrated on the natural gas and liquefied natural gas (LNG).

And in terms of natural gas, we’ve narrowed that down further by looking at unconventional natural gas plays, such as coal seam gas (CSG).

But let’s be honest, over the last few months we haven’t been the only ones looking at unconventional gas and oil stocks. Everyone’s been doing it.

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This time last week, we thought Queensland’s coal-seam gas producers would soon invade the world’s gas markets. We were wrong. The world’s gas markets have invaded Queensland’s coal-seam gas producers.

It’s not like this patch of the ASX has been wanting for investment in the past month. The share prices look like a water-slide in profile. If we had a petajoule of gas for every time we’ve written about it, we’d be clinching an LNG deal with BG right now.

But although the companies involved are gaining fast…they still look chronically undervalued. We say that based on the conservative analysis below.

Before we get ahead of ourselves, you’ll definitely want to know today’s big story. Royal Dutch Shell now has a dog in the fight. Not a small dog either. The LNG giant paid Arrow Energy (ASX:AOE) AU$776 million for 30% of its coal-seam gas fields.

So the coal-seam brigade has global LNG players BG and Shell in tow. Toss in Malaysian energy investment vehicle Petronas. It’s an all star team of backers. They’re the world’s experts in gas exporting.

And what do the world’s experts think Australia’s gas scene is worth?

A lot more than the going rate at the moment, apparently.

We love a good valuation. It makes things seems so much more crisp. The mist of uncertainty clears when you can value a company. Outlines become clearer. Risk melts away.

A good valuation is what you have here. What you can do today is piggy-back the world’s best. BG and Shell know the industry. They know the markets. They’ve told us what they think a joule of Australian coal-gas is worth. Now you have all you need.

According to a statement from Origin (ASX:ORG), the recent bidding from outsiders rates its total coal-seam gas reserves at AU$16 billion.

Reserves can be measured a few different ways in the gas industry. There are proven reserves (“1P”). There are proven plus probable reserves (“2P”). And there are proven plus probable plus possible reserves (“3P”). The last one includes the total as the company thinks it can produce at a profit.

Looking at Origin’s price tag, each gigajoule of its 3P gas is worth $1.58. Let’s value the next three biggest producers by that benchmark. Voila. You have the table below.

There’s an intriguing fact about the coal seam industry. Santos and Origin hog the limelight. They have the most 2P reserves. But they only hold around 32% of total 3P reserves. The other 68% is owned by smaller companies. That’s why Queensland, Arrow and Sunshine are so undervalued compared to their larger comrades.

Those reserve figures are growing all the time too. Today’s humble table takes into account the fact that Origin more than doubled its total reserves last week.

Any way you look at it, there’s logically more share price growth to be had here. Markets don’t always respect logic though. Sometimes it thumbs its nose at it. That’s why you still have the chance to get in today while the medium-sized stocks are ripe.

We’re even more excited about our favourite stock for the sector though. There’s a reason it’s an even better bet than any of these companies. To find out why, click here.

Solomon Lew Sharks Just Group

Just Group has knocked back Solomon Lew’s AU$837 million takeover play. The crafty investor must have seen the company’s share price. It has shed 31% since last November.

“(The) opportunistic offer materially undervalues the company,” Just’s chairman Ian Pollard grumbled.

We believe that’s the point. Why would anyone want to buy a retailer for a fair price in 2008?

Hmmm…well, revenues aren’t growing much. That’s thanks to the RBA’s assault on consumer spending. JP Morgan says that Australia earnings have suffered badly in the tightening phase.

Costs are rising too. Oil prices have fallen to just US$127, in the same way a sky-diver falls to just 4km from the ground. The problem is, oil price may never get back to the ground.

Will interest rates fall? That could send more customers through Just Group’s front door.

Interest rates will probably continue to depend a lot on consumer inflation. By that, we mean how much money the RBA gives people to spend. A rising money supply in the long term will cause inflation. That said, we can’t imagine the professional economists and analysts at the RBA trying to beat off commodity inflation with a higher price on money.

The future is cloudy, says the magic eight-ball. Retailers are difficult to value at the moment. There’s no striking feature that screams buy. There’s no especially compelling reason to get in, even at a 31% cheaper price. We like our investments (and yours) to be compelling.

But clouds get us down. So we continue to focus on that blistering ray of light shining through onto the resource sector. Energy especially.

All Banks to Chip in for Losing Companies

Here’s a story in a similar vein. Why would you bank today? What we’re waiting for (and it could take years) is a sign that revenue growth will boom again.

But the government is doing a splendid job of not helping. Australian deposit –holders could soon have their savings insured up to $20,000 if their bank collapses. Who picks up the tab for more than $20,000? The other banks.

Essentially, this averages risk over the entire industry, instead of the dodgiest lenders. Banking incomes are still getting the wrong end of the stick. No earnings revelations here.

Good investing,

Al Robinson

Since the beginning of the year, the natural gas price has been rising. Oil has towed it along a bit, but demand for natural gas is increasing. So far, gas futures are up 48% for 2008. This has erased part of the big fall that happened 2006.

Support/Resistance

The price plunged in ’06. The key moment there was when price broke through long-term support. It had found support on that line since 1997. Each time it tested the level, price rebounded. Support shattered in February 2006, and immediately became a technical resistance. Gas rose again 2 months later, but found a ceiling at the same line where it formerly had support.

So now, that’s our mid-term target in the latest bull-run. It’s currently sitting at $14.50.

On the flip side, gas futures made a new support level to replace the old one. A traditional double bottom confirmed new support at around $7 last year.

Moving Averages

Bullish. Clearly bullish, particularly in the medium-term. The moving averages suggest an uptrend. But here’s where some experience in charting counts. The trend has shown that it progresses in waves. As Al said earlier…two steps forward, one step back. For traders playing the bull trend, betting on dips is the best strategy here.

So you’ll probably see some short-term profit taking. It’s highly unlikely this will have any affect on the greater trend. But we haven’t had one for a while. Watch out for a short-term buying opportunity coming up.

21-day Williams %R

This confirms our thoughts on the short-term move. The Williams recently moved into the overbought area. Traders will soon have had enough, and look to realise their gains. You have a chance to buy into their selling, and maybe snap up a good price.

Next Price Target

Yesterday the price closed on its 20-day moving average. A closing price below this MA tonight would drive the further price action towards the intermediary support. Depending on how much profit traders take, it should either fall to around $10.50 or potentially $9.30.

Then, if one of these two points hold, traders will turn around and look for a position until we reach $14.50 again.

Good investing,

Gabriel Andre