From Porter Stansberry in the S&A Digest:

Ahhh... the mid-summer Digest... Yesterday was the last day in the office before vacation for much of Wall Street. Try renting a house or a hotel room in the Hamptons, Maine, or Cape Cod over the next month. Little, if anything, will happen on Wall Street over the next 30 days. What should you do, dear subscriber, while the rest of the financial world takes a break? We have a few ideas...

First and foremost, take advantage of what resource insiders call the "selling season" and what I call the "silly season." No one is working in Toronto this month either, where most small-cap resource stocks trade. That's why this is the best time of the year to put "stink bids" into the market on early-stage resource stocks you've been watching. (A "stink bid" is an offer to buy a stock that's well below the market price, which typically only gets filled if a very inexperienced trader is trying to sell shares.) Now... I know what 97.2% of our readers are thinking to themselves right now: Small-cap resource stocks?... What are those?... And why on Earth would I ever buy one?

As you know by now, I use Friday's Digest to introduce you to investment strategies that are probably new to you. This year, we've talked about buying corporate bonds, selling short, selling put options, buying warrants, and following insider buying. Today, I bring you small-cap resource stocks – something I'm 100% sure your broker will never tell you about. Why should you care? Let me give you an example...

In November 2009, we sent our resident geologist, Matt Badiali, on a Phase 1 research trip to investigate rumors of big new gold discoveries in Canada's Yukon Territory. Now... just to be clear... we regard most such Canadian tales as lies. After all, a gold mine is just a hole in the ground with a promoter next to it. But they do find gold in Canada. Lots of it. And many of the wealthiest people we know personally have made most of their money through early-stage resource stock investing.

So is there a smart way to sort the few winners from the many losers in the sector? We think so. We begin our research process by consulting with some of the world's top geologists and mining analysts. Then, we do something that might sound obvious, but isn't:  We wait. We hold off until the company reports drill results good enough to indicate a high-quality mine can be built.

In 2009, lots of promoters were touting gold discoveries in the Yukon. We were watching closely, waiting for solid results. Then, in July, a small exploration company called ATAC Resources announced a rich core sample from a 13-mile limestone trend called the Rau Gold Project. (Limestone is good ore because it's easy to refine the gold out of it.) The stock jumped from around $0.07 (yes, that's seven cents) in December 2008 all the way to more than $1 in the summer of 2009. Lots of investors would assume that's as far as the stock was likely to go. The good news was "priced in," they'd say.

But we know better. Literally hundreds of exploration companies have claims to gold-rich areas in the Yukon. Most of them are never going to find a big deposit. By waiting until we have real evidence of a big discovery, we can eliminate 90% of the companies – and most of our downside risk. Even better, this technique doesn't eliminate our upside. Not at all. You see, we knew that ATAC had only drilled 5% of its land position. We knew more results would come in. And if the first results could be repeated over a wider area, we knew the stock would soar. In November 2009, we advised our Phase 1 subscribers to buy the stock up to $1.10. It traded around $1 for a while... then jumped to $1.50. Now, it trades at $2. Why? Because just as we expected, as the company completes more of its drilling program, the size of the deposit is growing. And as the size of the deposit grows, so does the economic feasibility of mining.



Our in-house expert, Matt Badiali, explained back in late 2009: "The conservative, back-of-the-envelope gold volume at Rau is about 250,000 ounces of gold in easily refinable rock... The company's goal is to increase that number to more than a million ounces. At that volume, Rau would justify a nice, easy, and economic open-pit mine."

Yesterday, ATAC announced more drilling results. Says Matt about the findings:

The company more than doubled its potential resource from my original writing. In addition, it discovered two completely new areas, called Ocelot and Osiris. Osiris had rocks with 4 to 5 times higher gold grades than at the original discovery. The company just mobilized a fifth drill rig, so we should see a whole lot of data between now and when the snow flies in September. I expect them to get close to the million ounce goal this year...

What should you do with this kind of information? Here's what I'd suggest. First, talk with your broker to make sure you have the ability to buy stocks on the Toronto Venture Exchange, where most of these kinds of exploration stocks trade. If you're going to get into this game, you have to have the right tools. You don't want to be dependent on U.S. pink-sheet listings for these stocks because there's rarely much liquidity in that market.

Second, you should learn a little about the mining, exploration, and resource business. It's one of the few areas of the stock market where getting five-, 10-, and even 100-fold gains isn't that unusual. I'd suggest subscribing to Badiali's S&A Resource Report and Casey Research's Gold & Resource Report. These publications won't cost you much (around $100 per year), and there are no better sources of reliable, independent information on the sector. (Quite honestly... it's amazing that you can get such good information for such a low price.)

Next... attend a resource conference. Listen to guys like Rick Rule, Casey Research's Marin Katusa, and our own Matt Badiali – guys who spend all day, every day combing this sector for values. Pay attention to the strategies they use – like the one I explained to you here today. Ask them all of the questions you can. Don't just get their stock recommendations, get their book recommendations. Try to get an understanding of how they play these stocks – I guarantee you'll be surprised.

If you can't (or don't want to) travel to a conference, look for our upcoming Off the Record conference call about the Yukon discoveries. The CEO of ATAC, Rick Rule, and Matt Badiali will be on the call. You can sign up for Off the Record, here.

Finally... after you've picked up the basics on the sector and gotten comfortable with the terms and the large-cap stocks in the sector, you should consider paying more for research on specific small-cap exploration companies, like ATAC Resources. We cover the sector in our Phase 1 service, which focuses on early-stage resource and technology companies. It's expensive – $5,000 per year – but as you can see, it's worth it when you can get into stocks like these.

Now... you might be thinking to yourself, I don't understand geology or mining. I wouldn't know a core sample from a garbage can. And maybe that's true – right now. But the real question to ask yourself is whether or not it's worth it to learn these things. Most of the time, I'd say no. But when it comes to the resource sector, investors can make so much money it's worth the extra effort. If nothing else, you should be set up to learn about all of the important drill results being made right now in the Yukon. And you can learn about them in our Resource Report – which costs about $100 per year. That's a bargain.

Crux Note: To learn more about the S&A Resource Report, click here.

More from Porter Stansberry:

Porter Stansberry: Sell these stocks now

Porter Stansberry: 90% of our readers could be making a terrible mistake

Porter Stansberry: How I discovered the world's best money-making secret