Table of Contents

1.  Market Outlook
2.  ARC Energy Trust (AETUF)
3.  Gushan Environmental (GU)
4.  Additional Investing Ideas
5.  Investor Trivia -- Expense Ratios
6.  Featured Topic -- Canada's Energy and Economic Boom
7.  Free Investing Resources

Today's Top Stock Picks

The Little-Known Energy Stock Yielding 9.5%
This Canadian trust has an active roster of oil and gas plays it continues to develop, allowing it to carry a nearly double-digit yield.
Read More. . .

Gushan's (GU) Sales to Grow +66% this Year on Chinese Energy Demand
Increasing pollution and rising oil prices are leading the Chinese toward cleaner energy, and Gushan is at the head of the movement.
Read More. . .

Market Outlook

The first quarter of 2008 was a dismal one for most investors, with the major averages chalking up one of their worst periods in more than five years. However, stocks recovered smartly on the first day of the new quarter (April 1st) -- giving the market renewed optimism that there may be a light at the end of the tunnel.

It may have felt like a cruel April Fools' Day joke, but the Dow Jones really did rocket nearly 400 points this past Tuesday, driven by a healthy recovery in the beleaguered financial sector. Bank of America (NYSE: BAC), JP Morgan Chase (NYSE: JPM) and Citigroup (NYSE: C) all put in gains of around +10%, and Lehman Brothers (NYSE: LEH) surged almost +20%.

Investors reacted positively to news that Lehman and European banking giant UBS (NYSE: UBS) were both raising billions through new stock offerings, helping to shore up their shaky balance sheets and quell liquidity-related fears that have plagued the industry in recent months.

Those announcements, along with moderating commodity prices and mildly positive news from the construction and manufacturing sectors, incited a wave of relief buying that propelled the market to one of its best days of the year.

And for a change, the major averages were able to digest those gains, rather than surrendering them over the next day or two -- a positive sign that suggests confidence is returning. Despite another grim employment report on Friday revealing that the economy shed 80,000 jobs in March, the S&P 500 managed to finish the week with a very respectable gain of +4.2%.

The latest data from the weakening labor market is the surest sign yet that the economy has either stalled or slipped into a recession. However, the market is a forward-looking mechanism, and traders are already thinking ahead. On that note, a wave of earnings pre-announcements expected over the next few weeks could dictate the tone as we move forward.

For now, investors continue to look abroad for superior growth and outsized gains -- and few regions can match China in either department. Below, Cabot Wealth Advisory editor Timothy Lutts sheds some light on one of most promising firms in the world, Gushan Environmental (NYSE: GU, $15.48). Fueled by soaring demand for clean energy alternatives like biodiesel, Gushan's revenues have spiked more than 25-fold since 2002. And with the Chinese government taking aggressive steps to curb pollutants, this could be just the beginning.

Also in today's newsletter, High-Yield Investing editor Carla Pasternak shares some thoughts on ARC Energy Trust (OTC: AETUF/TSX: AET-UN, $25.20). Despite soft prices for natural gas, this major Canadian oil & gas producer still managed to churn out more than $3.00 per share in cash flows last year, more than enough to support a generous 9.5% yield.

Good Investing!

-- Nathan Slaughter
Co-Editor
TopStockAnalysts Digest

ARC Energy Trust (OTC: AETUF/TSX: AET-UN, $25.20) is the 14th-largest oil and gas producer on Canada's benchmark Toronto Stock Exchange and one of 25 companies that produce 90% of the oil and gas in western Canada. In 2007, production was estimated to be approximately 63,000 barrels of oil equivalent per day (boe/d). From its inception in 1996, ARC has provided investors with an annual return of +26.6%, including dividends and share price gains.

Since November 2005, ARC has paid out $0.20 Canadian per unit monthly, for a total of $2.40 per year. Currently, the U.S. and Canadian dollars are near parity. As such, U.S. investors can expect to receive a similar amount -- which equates to a yield of 9.5%. The company has a history of steady dividend payouts. Prior to increasing its dividend in 2005, the company paid $0.15 per unit monthly for nearly three years.

ARC is headquartered in oil and gas-rich Alberta and 67% of its production comes from that Canadian province, with another 26% from Saskatchewan and Manitoba. The company is balanced in terms of oil and gas production, with light and medium oil comprising 51% and natural gas 43%. The balance of production is in natural gas liquids and heavy oil.

In 2007, the company's per share cash flow from operations declined from $3.59 to $3.35. However, ARC maintained its annual distribution at $2.40 per share, paying out a conservative 72% of its operating cash flow.

The company was hamstrung by weaker natural gas prices last year. For 2007, gas brought in an average of $6.75 per thousand cubic feet (Mcf) -- versus $6.97 in 2006.
And although oil prices soared over the past year, the strong Canadian dollar offset some of the increase. As a result, the average price (before hedging) ARC received on its oil production during 2007 was only marginally better -- $69.24 compared to $65.26 -- than the year before.

Still, to keep production steady, ARC has an active roster of shallow gas plays it continues to develop, as well as light oil properties in Ante Creek, Pembina, and southeastern Saskatchewan. Roughly 66% of its reserves are proved and producing, with the balance considered the more speculative "probable."

Investors should be aware that a variety of tax changes could affect the stock. Most important is the Canadian government's legislation that will likely force most Canadian royalty trusts to convert to corporations by January 1, 2011. In fact, the company, which was one of the first to adopt the trust model, said it is leaning toward converting to a corporation, as "the conversion from a trust to a corporation may be the most logical and tax efficient alternative for ARC unitholders.''

In addition, the Alberta government hiked royalties on oil and gas production as of January 2009. Since ARC has nearly 70% of its production in Alberta, this royalty increase could increase the company's royalty taxes paid to the province.

In March 2007, the U.S. Congress also introduced legislation that would mean U.S. unitholders would no longer receive the 15% qualified dividend tax rate on Canadian income trusts they had in the past. This legislation is still pending.

Offsetting these bearish factors are planned changes to Canadian taxes that will bring corporate rates down from 22.1% to 15% between now and 2012.

Action To Take ---> ARC is suitable for investors who can tolerate volatile commodity prices, changing U.S./Canadian currency exchange rates, and an uncertain legislative environment in order to secure a near double-digit yield.  

Gushan Environmental (NYSE: GU, $15.48) is China's largest producer of biodiesel fuel and related products and thus, a key element of the country's plan to reduce air pollution while reducing reliance on fossil fuels.

Biodiesel is derived from natural oils by a chemical process that splits oil (usually soybean) into biodiesel and glycerin. Compared to traditional diesel, biodiesel results in almost complete elimination of acid rain-causing emissions. Since trucking fleets are nearly completely diesel-based, it can provide a tremendous benefit to the environment, as well as some freedom from oil imports.

Nowhere is the combination of pollution and reliance on petroleum imports a more pressing need than in China. The booming economy there has brought with it a surge in diesel use, up +200% in the past decade to 116 million tons a year. Pollution from automobiles has gotten so bad in parts of China that some running events have been threatened to be moved from Beijing for this summer's Olympics. That has led the Chinese government to get behind biodiesel in a significant way this past year. The country is now aiming to use 20 million tons by 2020, up from an estimated 200,000 tons in 2007.

Of that 200,000 tons, 190,000 (95%) came from Gushan. By the end of this year, Gushan will have annual capacity of 400,000 tons thanks to new plants slated to open in Beijing, Shanghai, Hunan and Chongqing provinces.

The company has focused on making its product not from soybean oil but from waste sources including vegetable oil, used cooking oil and methanol. Sales exploded from $5.3 million in 2002 to $115 million in 2006 (2007 sales are estimated to come in at $130 million), with net profit margins over 40% each year.

The price Gushan fetches for biodiesel varies in tandem with traditional diesel. Traditional diesel prices in China hit $1,000 a ton in late 2007, and have recently dipped because of seasonal factors to $800 a ton. Based on past years, that implies Gushan is now making somewhere around $720 a ton for its biodiesel.

There are only so many restaurants from which to collect discarded cooking oil in China, so the government has announced an effort to plant 7,000 hectares of forest this year in the Hebei province (where Gushan has a factory) to produce material for biodiesel. Plantings like the Chinese pistachio tree and others are seen as beneficial because they can be grown on mountainsides that can't be used for other agriculture and provide jobs for people in remote villages. And the nuts have high natural oil content that provides a strong yield for producers. Hebei and other provinces also have stated they will plant another 1.27 million hectares of biodiesel forest by 2010, with government plans calling for 13 million hectares by 2020. It's all part of an effort by the government to grow national renewable fuel use to 10% of total fuel use in two years (from about 8% now) and to 15% by 2020.

For Gushan, all of that should power sales growth of +66% in 2008 to $214 million, presuming China's diesel doesn't fall too far below $800 a ton, which isn't expected. If prices climb closer to the $1,000 a ton mark for the year, Gushan could blow past that $214 million estimate quite easily. Since 110,000 tons of Gushan's annual production isn't scheduled to come online until the fourth quarter of 2008, sales should rise significantly again in 2009.

Gushan holds a Chinese patent through 2020 on technology it developed to efficiently process waste products into biodiesel, something it says allows it to operate more profitably in the sector. Competitors, which relied mostly on food crops for their biodiesel efforts, have to play catch-up in light of new regulations. In the meantime, Gushan has filed for six more patents on various biofuels processes. It's also worth noting that Jianqiu Yu, Gushan's founder, chairman and owner of 42% of the stock, is a member of the political committees of two provinces, giving the firm a stronger voice in policy.

In short, Gushan has a great growth story, and because it's still little-known by U.S. investors, there's tremendous upside potential for a big "Romance Phase" uptrend.

Short-term, however, you need to be careful. Aggressive investors should try to buy low and keep close stops.