Cramer’s Speculating Where? Venezuela? (HNR, TX)

Cramer has two speculative plays down in Venezuela to make money off of.  He thinks the nationalizations have already happened and the bad news is baked in.  If you are a ‘safety and stability’ stock investor you might want to stop reading here.  This strategy will result in one of two things: Rags to Riches OR the Boulevard of Broken Dreams.

Harvest Natural Resources (NYSE:HNR) focuses on 3 small fields in Venezuela.  The deal they made isn’t as bad as it looks, they have a deal through 2026 and now got smaller rights to 3 more fields.  He thinks there is even a shot that they could get the concessions that Exxon Mobil (XOM) and ConocoPhilips (COP) walked away from.  Two-thirds of these reserves are not proved.  He can’t justify more than a $15.00 price to pay, but he doesn’t think that it will be expensive until $15.75.

Cramer thinks the one steel stock in Venezuela that is safe is Ternium (NYSE:TX) because it is an Argentinian compay rather than a U.S. company.  Chavez likes Argentina, even if he hates us.  Ternium is in talks to get a deal to keep it from getting nationalized.  This one also operates elsewhere in Latin America.

Well, one thing is probably a lock: these are indicated higher after Cramer’s comments……. BUT, there are so many places you can invest that you don’t have to take this sort of risk.  If I was going to follow either of these, I would MUCH rather be investing in an Argentinian company in Venezuela rather than a fellow company from my own Gringolandia doing business in Venezuela.  BUT (again a but), putting your money down there is like giving a huge loan with no collateral and without a legal contract.  The exception is that you could get hosed in Venezuela even with the collateral and the legal contract.  Remember the Golden Rule: He Who Has The Gold Rules!  Right now Chavez is the one that has the gold.

Jon C. Ogg
July 6, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.