mainstreet stock with 1000% return potential

***Don't Write Off Iron Ore Too Soon ---
FRS: market cap $32mln
Cash: $17.5mln

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Another company I haven't mentioned for a while is Ferraus, our iron ore play. The stock price has been trading below 20 cents for some time. Given the negative stories from China and Japan about slowing exports and production, it is not surprising that iron ore companies have been hit hard.

And resources stocks in general are likely to remain volatile for some time as investors grab any item of news as a positive or negative sign of the market. That means you will see over-reactions on either side until more stability and certainty return to the market.

But, as this is a small cap newsletter we are comfortable sticking with higher risk situations. Especially in the case of iron ore and exports to China.

Mainstream commentators are convinced that the concept of the world 'decoupling' from the US was an illusion. They argue the US is such a huge consumer driven economy that unless it recovers the world economy cannot recover.

This is false. History is littered with the rise and fall of empires and economies. Many people forget that the British Empire was first and foremost an economic empire, built on trade between the colonies and the Britain. In its own way, the US 'empire' is little different.

Although we won't see a seamless transition from US dominance to Asian dominance, nonetheless the transition will happen. And chances are it won't take as long as it seems. That means 2009 could be the year to increase exposure to two sectors of the market that have the most to gain.

That is materials and especially energy. As I've often said before, these things don't move up in a straight line, there will be peaks and troughs along the way. And they won't come without risk.

But back to Ferraus. The news is Ferraus increased its resource at the Davidson Creek and Robertson Range projects. This is encouraging. The total resource at the projects is estimated to be 150 million tonnes. Even if iron ore contract prices fall to around USD$55 per tonne, you're still looking at the potential value of the projects of $8.25 billion.

At the current price of 15 cents per share, and a market cap of just $27 million this really is one of the 'cheap' stocks on the market. If the company can produce the 2 million tonnes of iron ore per year that it forecasts then we can comfortably see the stock trading well above $1.

In fact our original tip of a $2 share price still holds once demand starts to pick up again.