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For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.

"My favorite speculative choice for 2008 is InterOil Corp. (Toronto: IOL)," says Yola Edwards, editor of the technically oriented Yola Edward's Charts.

"The company is a junior exploration company involved in liquified natural gas. InterOil has partnered with Merrill Lynch Commodities, Inc. to develop a project in Papua New Guinea.

"InterOil's assets consist of petroleum licenses covering about 9 million acres, an oil refinery, and retail and commercial distribution facilities in Papua New Guinea. During 2006, the company announced a gas and condensate discovery, and doubled the downstream business by acquiring Shell's distribution assets in Papua New Guinea.

"The company announced a net loss of $17.9 million, or 60 cents per share (diluted), for the third quarter of 2007, compared with $7.3 million net loss or 25 cents per share (diluted) in the third quarter of 2006.

"Valero Energy is misunderstood on Wall Street," says Ken Kam, the editor of Marketscope. Here, he explains why he considers Valero Energy (NYSE: VLO) one of his "Best Ideas."

The advisor says, "When oil prices go down and Wall Street wants to sell energy stocks, Valero invariably gets sold off as well, just because it's part of the energy index. But Valero does not produce oil; it refines crude.

"So its profits do not necessarily rise and fall with the price of oil. Valero's earnings have skyrocketed in the past five years not because of rising oil prices but because there is a shortage of refining capacity. That shortage gets worse as the economy grows and our government refuses to allow more refineries to be built.

"I think the chances that the government will allow a refinery to be built in this country within my two-year investment horizon are pretty close to zero. This means that unless there is a recession, the shortage of refining capacity will get worse and Valero's profits will get better, whether oil prices go up or down.

"In any industry, one of the most sure-footed means of keeping profits steady is to own the suppliers of production means -- the old 'invest in the picks and shovels' approach," explains Neil George in Personal Finance.

He says, "For refiners, it means pipe, compressors, and the other bits used to crack crude into further profitable products." Here, he looks at a trio of favorites: Dresser-Rand Group Inc. (NYSE: DRC), Shaw Group Inc. (NYSE: SGR), and Tenaris (NYSE: TS).

"Dresser Rand is a leading global producer of highly specialized compressors and turbines, nearly 95% of which are used in the energy business. Compressors are used extensively in refineries; they're a crucial part of equipment used to process heavy and sour crude oils. The reactions used to process these more-complex crudes require generating extreme pressure and temperature.

"Dresser's products are also used to process Canadian oil sands. Dresser is also involved in some high-tech deepwater equipment work. The company has designed a subsea compressor and separator for Norway's Statoil.

"This equipment literally sits on the seafloor; the compressor helps to separate gas from oil and transport these commodities by subsea pipeline to distant floating production platforms.

MOST NOTEWORTHY:

• Morgan Stanley upgraded The Gap (NYSE: GPS) to Overweight from Underweight with a $23 target. The firm cited an improvement in apparel offerings and traction in merchandising and marketing initiatives.
• The Oil Refining sector was upgraded by the Banc of America this morning, citing the recent sell-off:
  • Valero Energy (NYSE: VLO) and Tesoro Petroleum (NYSE: TSO) were upgraded to Buy from Neutral
  • Frontier Oil (NYSE: FTO) was upgraded to Neutral from Sell

OTHER UPGRADES:

• UBS upgraded Reynolds American (NYSE: RAI) on valuation
• Foundry Networks (NASDAQ: FDRY) was upgraded to Outperform from Neutral based on their strong fundamentals in the second half of 2006.

Research provided by TheFlyOnTheWall.com (subscription required).