Rio Tinto is bullish on aluminum

Rediff is bullish on social networking

YUM! Brands is bullish on Asian restaurant goers

The IEA is bullish on oil

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Stocks moved to record highs in New York July 12th 2007 on news that consumers are still opening their wallets at a healthy rate. All but three of our portfolio stocks were flashing green at the end of the day. And on balance, our shares topped the gains in the major market averages by a wide margin.

Quite a few of these Emerging Leaders were in the news today day. Here's a sampling:

Rio Tinto Group (RTP) has made an all-cash offer of $38.1 billion for Canadian aluminum giant Alcan. The offer exceeds a previously made hostile bid by Alcoa for the company by $10 billion (and at nearly a 33 percent premium to the Alcoa bid). Not surprisingly, Alcan's board of directors is recommending shareholders accept Rio Tinto's tender. The combined company will be the world's largest aluminum company.

The deal is expected to be consummated sometime in the fourth quarter. Once finalized, Rio Tinto is expected to shed certain parts of Alcan in order to focus on its core mining and metals operations. The company has already indicated that Alcan's packaging division will go on the auction block and will likely fetch in excess of $6 billion.

Rio Tinto sees the acquisition as being accretive to the company's earnings and cash flow in the first full year and will result in tax cost saving of about $600 million annually. We think its earnings assumption may prove somewhat optimistic.

Nevertheless, the deal isn't too pricey. Alcan has a competitive advantage through its access to low cost hydro power for its smelting activities. If energy prices continue to rise, as we expect, this cost advantage will only increase. And as an added kicker Rio Tinto may ultimately benefit from carbon-credits awarded for its hydro power.

Speculation on Wall Street now is that the spurned Alcoa will try to hook up with another firm, with the logical choice being none other than BHP Billiton (BHP).

Shares of Rediff (REDF), the Indian Internet portal, soared more than 12 percent today (on the heels of a 23 percent increase yesterday) following the company's announcement of the introduction of a content sharing program called iShare. The site is similar to the popular YouTube; allowing users to share videos, music, pictures, via an-easy-to-use program installed on the user's PCs. Users can also upload pictures and videos off mobile phones, digicams, camcorders and music from MP3 players. With the program Rediff hopes to link the 53 million Indians expatriates worldwide to people in India with similar interests.

YUM! Brands (YUM) topped analysts' expectations with its quarterly earnings yesterday for the eighth time in the last 9 quarters. The parent of KFC, Pizza Hut and Taco Bell earned 39 cents a share in the period, verses expectations of 36 cents a share. The company's sales rose 8 percent in the period to $2.37 billion.

The company raised its full-year guidance to $1.63 a share (bringing it in line with Wall Street's consensus forecast), which represents a 12 percent increase over last year's results. Moreover, Yum! plans to repurchase more than $1 billion of its stock this year, reducing its outstanding share count by at least 3 percent. Management also intends to up the company's dividend.

But traders were disappointed with the company when it indicated that it doesn't expect to introduce a breakfast menu at its Taco Bell nationwide in 2008 even though it has been testing the idea in certain markets. Yum's U.S. Taco Bell business has been the weak link in its operations of late with same-store sales down 7 percent in the quarter compared to the year-ago period following an E. coli outbreak at some of its restaurants late last year. Overall, the company's U.S. same-store sales were flat in the quarter, although they rose 2 percent worldwide.

The IEA's Bombshell

A great deal of the stock recommendations in Emerging Investments are predicated on the idea that the world is running out of easy-to-access crude oil and the rapid economic growth much of the developing world is experiencing. At some point these two trends are going to collide.

A report out this week from the Paris-based International Energy Agency (IEA) suggests that collision could be just five years off. In its annual Medium-Term Oil Market Report the IEA attempts to lay out an unbiased forecast of the supply/demand picture in the coming years. The 80-page report is a fascinating read for data nerds like ourselves but we'll try to sum up some of key takeaways.

First off, you should be aware that the IEA has a history of offering a Pollyannaish outlook with its intermediate-term reports. So it was with some surprise that the organization came out with a less than sanguine forecast. In a nutshell, the report indicates that we'll see increasing market tightness beyond 2010. And by 2012 demand for crude oil will outstrip the world's available production capacity. Shades of Saul on the road to Damascus.

What's more, even this dire forecast appears overly optimistic. The IEA's expected rate of depletion in existing fields is lower than what has been reported. It's also counting in increased output from nation's where production has cleared peaked--something we find highly unlikely. And the report doesn't take into consideration the fact that oil producing nations are consuming greater amounts of oil themselves with each passing day, leaving less available for export.

The rapid industrialization of China, India and other emerging nations isn't going to stop anytime soon. The inescapable conclusion is that oil prices will rise substantially in the coming years as more dollars, euros, yuans or (insert currency name here) chase fewer barrels of available oil. Fortunately, we're well positioned to profit from the move.