By MoneyMorning.com.au

Right now, Australian resource stocks are some of the world’s best bargains.

Despite the falling price of crude oil — and in some cases, because of it — companies in this sector are primed to deliver enormous potential returns.

But when stocks are attractively valued, your average mug punters are racked with fear.

They fall for the headlines in the mainstream media — the ones that peddle lies about the sky falling in.

And they sell at the precise moment when they should be buying.

That’s happening in markets across the world today.

It’s a shame for the mug punters…but I can’t say I haven’t warned them.

And as you’ll see, their loss could be your gain…

Last week I showed you how you could fruitfully invest in today’s bruised and battered Aussie resource sector.

Then, on Saturday, our Resources Analyst Jason Stevenson revealed four energy stocks that are primed and ready to explode.

I’ve never seen Jason as excited as he is right now about this select group of elite stocks.

Jason is convinced these four firms will offer you a clear path to potential riches once the market gets wind of their plans.

For example, one of these stocks could be just months away from a huge farm-out deal with a major resource company.

In fact, that company is already in advanced talks with BHP Billiton Ltd [ASX:BHP].

I’ve read Jason’s research — the companies he has tipped clearly have what it takes to succeed.

But these stocks won’t be for everybody.

These kind of speculative punts are not for the faint of heart.

But that’s okay.

The way I see things, this market offers you three ways to potentially profit from the oil price smackdown.

Each approach could suit you differently depending on your attitude towards risk and reward. As a rule of thumb, you can’t scoop more of the latter unless you take more of the former.

Value hunters emerging

The first route to potential profit is by buying Australia’s large, diverse oil and gas producers.

The plummeting oil price has punished these stocks.

Crude oil has lost more than a fifth of its value over the past four months. That has forced traders to aggressively cut the price of shares in oil producers like Woodside Petroleum Ltd [ASX:WPL], Santos Ltd [ASX:STO] and Beach Energy Ltd [ASX:BPT].

With all the chatter of ‘corrections’ in the Australian stock market, you should know that many of these kinds of stocks have already had their correction.

With these shares down between 11% and 28% from their recent highs, shrewd value hunters are starting to nibble.

These large companies offer diverse exposure to a commodity that the world can’t do without.

A time will come when these stocks are too cheap for the heavy hitters to ignore. You’ll want to own them before that day comes.

Fortunes for investors

The second way to play today’s oil market is by investing in one of the most exciting high-tech trends to sweep the sector in years.

Advances in exploration and drilling tech have ‘unlocked’ billions of barrels of oil that oilmen were previously unwilling or unable to pursue.

That has driven the ‘shale gale’ — the massive production growth that’s taken the United States from a vulnerable customer of the OPEC cartel to an energy exporting powerhouse.

A similar trend is playing out in Australia.

Newly extractable shale oil and gas is making fortunes for drilling companies, landowners and investors across Australia.

But investing in companies that are drilling shale takes careful thought.

Buying these kind of stocks means you need to consider the direction of the oil price much more closely.

That’s because some of their efforts are only economic when the world price of crude oil trades above a certain threshold.

With oil bubbling along at more than US$100 per barrel, these worries tend to recede.

But the large recent moves in the oil market have brought these issues to the surface.

A falling oil price tends to hit these kinds of stocks harder than the big diverse companies I mentioned earlier.

That gives canny investors much more runway to reap big potential gains when the oil price rebounds and these stocks come back into vogue.

My favourite play

As a small-cap stock analyst, this is my favourite way to play the oil market.

But it won’t be for everyone.

That’s because it involves taking on high levels of risk.

It’s strictly for speculators who are willing to risk a minor stake for the chance to make a fortune.

It’s for the investor who’s comfortable putting a small part of their portfolio in speculative stocks for the chance to supercharge their savings.

They go into these deals with their eyes open. They understand that if things don’t work out, the value of that minor stake could go to zero.

But that’s part of the game.

The speculative stocks I’m talking about are ‘frontier’ oil explorers.

If these companies strike oil, their share prices could double or triple in a matter of days.

But there’s one key reason why these stocks are particularly compelling today.

As I mentioned earlier, exploration and drilling tech has taken massive strides over the past few years.

So much so that we’re at a point when exploration risk is significantly less for the new breed of oil explorer than it was for their 20th century forerunners.

In one area of the world, this simple fact could multiply your stake by a factor of 15-to-1.

You owe it to yourself to consider this opportunity now.

That way, you can buy your stake before the rest of the world cottons on and piles in…and you could reap the benefits.

Cheers,

Tim Dohrmann,
Editor, Money Morning

Join Money Morning on Google+

The post How You Could Make a Fortune in Resource Stocks appeared first on Stock Market News, Finance and Investments | Money Morning Australia.

By MoneyMorning.com.au