Two months into the year and investors' true 'metal' was tested, and mine more than most. February showed signs of improvement over January, but the last week ended hopes of any rally. The last day of January saw a 370 point drop in the Dow and February's last trading day closed with similar results, down 315 points.

The soft stock market did display many points worth noting. The Dow Jones Industrial Average was about break even for the month, indicating investors were showing some signs of support for large cap stocks, prompted in part by news of increased profits at Wal-Mart (NYSE: WMT) and share buy-backs at IBM Corp (NYSE: IBM).

I cannot say the same for the other major indices, NASDAQ Composite Index and Standard & Poor's 500 Index, which dropped significantly last month.

Some of my picks also sagged a little more, although not as much, while two turned into positive territory. In January, only Raytheon Co. (NYSE: RTN), the high tech, defense contractor, was up. In February, the weak dollar and inflation concerns boosted Anglo American plc (ADR) and Reliance Steel & Aluminum (NYSE: RS) -- two commodity plays.

I recently posted Chasing Value: Final list -- 8 stocks for 2008 and mentioned that all of them pay a dividend. If this year is going to be as gloomy as some would have you believe, then stocks that pay dividends, as a group, will outshine those that do not.

The following are my eight picks, with the closing stock price as of my start date December 28, 2007 and the dividend yield. Last year, there were more stocks among my picks that paid a dividend higher than the S&P 500 Index average of 1.8% . This year there are only two.

• Anglo American plc (ADR) (NASDAQ: AAUK) $30.79. 1.9%
• Bunge Limited (NYSE: BG) BG was $119.03. 0.56%
• Huaneng Power International, Inc. (ADR) (NYSE: HNP) HNP was $41.75. 3.5%
• Loews Corp. (NYSE: LTR) at $49.35. 0.50%
• Newcastle Investment Corp. (NYSE: NCT) was $13.08. 22%
• Raytheon Co. (NYSE: RTN) RTN was $61.51. 1.65%
• Reliance Steel & Aluminum (NYSE: RS) $54.32 per share. 0.58%
• Valero Energy Corp. (NYSE: VLO) VLO was $70.55. 0.66%

Valero Energy Corp. (NYSE: VLO) stock is falling with other oil stocks as crude oil futures have been slipping this morning by almost 3%. Traders are expecting OPEC ministers to agree to raise crude production during a meeting next week. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on VLO.

After hitting a one-year high of $78.68 in July, the stock has declined a bit over the past four months. This morning, VLO opened at $63.58. So far today the stock has hit a low of $60.80 and a high of $63.58. As of 11:05, VLO is trading at $61.84, down $2.21 (-3.4%). The chart for VLO looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $75 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in 2 months as long as VLO is below $75 at January expiration. Valero would have to rise by more than 21% before we would start to lose money.

VLO hasn't been above $75 since July and has shown resistance around $68 recently. This trade could be risky if the price of oil stabilizes and then moves higher, but even if that happens, this position could be protected by the resistance VLO formed between $70 and $75 in October.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in VLO.

Valero (NYSE: VLO) is not one of the famous "big oil" companies, but with a market cap of $39 billion and trading volume that averages nine million shares a day, it is big enough.

The difference between the price of crude and what Valero could charge for finished petroleum-based products hurt its earnings as it has other oil companies that have reported Q3 results.

Third quarter 2007 operating income was $1.2 billion versus $2.3 billion reported in the same period last year. The $1.1 billion reduction in operating income was mainly due to higher prices for light sweet crude oils. Revenue was up only slightly to $23.7 billion.

The company was not high on its Q4 prospects either. "So far in the fourth quarter, the margin environment has been difficult as prices for refined products have failed to keep pace with the increase in feedstock costs," said Bill Klesse, Valero's Chairman of the Board and Chief Executive Officer. "In particular, the seasonal supply and demand patterns and higher feedstock prices have squeezed gasoline margins."

So Valero finds itself in the difficult position of not being able to pass rising oil prices on to end-users fast enough to drive up earnings.

Ironic that an oil company cannot make more money as its primary commodity's price moves up sharply on an almost weekly basis.

Douglas A. McIntyre is an editor for 247wallst.com.

This year has been a stock picker's market extraordinaire! This month's review provides ample evidence of this, as you'll note that Google (NASDAQ: GOOG), which I included for fun because of its popularity, beat all else as a portfolio of one. The average of my seven picks came in second, beating James Cramer's average based on his nine picks. Both Cramer and I beat each of the three indices I am tracking, and therefore beat the average as well, with the largest and most stable, the Standard & Poor's 500 coming in last.

Of course, this could easily change given recent market volatility. A sharp downturn in the market could reverse our fortunes. A lot can happen in the remaining two months -- I take nothing for granted.

While Google shined brightly this year, Cramer and I have each made one pick that shined brighter. Cramer's best, Apple (NASDAQ: AAPL) has gone into orbit this year on the wings of the iPhone, iPod, and growing Mac sales. Benefiting from rising oil prices, shortages in China and the Chinese government allowing a 10% price hike, my PetroChina ADR (NYSE: PTR) has rocketed, becoming the second-largest capitalized company in the world. PTR has done this even in the shadow of Berkshire Hathaway (NYSE: BRK.A) selling its shares and Warren Buffett questioning the huge appreciation of the Chinese stock market and stocks overall.

What are the best energy investments for long-term investors? To answer this question, I surveyed 20 of the nation's leading financial newsletter advisors to find their current favorite ideas in the energy sector.

Interestingly, the advisors see the best opportunities in areas well beyond traditional oil firms; indeed, no one included in this report chose a major integrated oil company. Rather, the advisors have shown a preference for various oil services sectors, non-oil energy sources, and developing alternative technologies.

Some focus on areas such as deep-sea operations with Diamond Offshore Drilling Inc. (NYSE: DO), Transocean Inc. (NYSE: RIG) and Oceaneering International (NYSE: OII), while others look toward oil shippers such as Nordic American Tanker Shipping (NYSE: NAT) and refiners such as Valero Energy Corp. (NYSE: VLO).

Others chose companies that make specific products needed by the oil & gas industries such as NATCO Group Inc. (NYSE: NTG), which makes a wide range of oil & gas processing systems; Dresser-Rand Group Inc. (NYSE: DRC), a maker of control systems; Gardner Denver Inc. (NYSE: GDI), which makes compressor and fluid transfer systems; Tenaris (NYSE: TS), a maker of pipes and tublar products and Schlumberger Ltd. (NYSE: SLB), the largest and most diversified of the oil services companies.

Despite plunging crude oil futures, Valero Energy Corp. (NYSE: VLO) shares are trading higher today after Citigroup upgraded VLO from hold to buy. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on VLO.

After hitting a one-year high of $78.68 in July, the stock dropped sharply and has been trading mostly in the upper $60's over the past three months. VLO opened this morning at $68.85. So far today the stock has hit a low of $68.81 and a high of $71.90. As of 11:30, VLO is trading at $70.44, up $2.09 (3.1%). The chart for VLO looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $60 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just 6 weeks as long as VLO is above $60 at November expiration. Valero would have to fall by more than 14% before we would start to lose money. Learn more about this type of trade here.

VLO hasn't been below $60 since March and has shown support around $68 recently. This trade could be risky if oil prices relax over the next few months, but even if that happens, this position could be protected by strong support between $60 and $65, where the stock bottomed out in August.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in VLO.

MOST NOTEWORTHY: The biotech sector, WESCO International, Wyndham and Century Casinos were today's noteworthy initiations:

• BMO Capital initiated coverage on Arena Pharmaceuticals Inc. (NASDAQ: ARNA) and Gilead Sciences Inc. (NASDAQ: GILD) with Outperform ratings and a $16 target and $51 target and Celgene Corp. (NASDAQ: CELG) and Genentech Inc. (NYSE: DNA) with Market Perform ratings and a $69 target and $85 target.
  
• CIBC initiated shares of WESCO International Inc. (NYSE: WCC) with a Sector Outperformer rating and $46 target. The firm believes lower estimates are already priced into shares and that the company's operating initiatives increase the chances for more stable margins in this environment.
  
• Deutsche Bank started shares of Wyndham Worldwide Corp. (NYSE: WYN) with a Buy rating and $41 target. The firm believes stability of the timeshare industry, international expansion and improved transparency will serve as catalysts for shares.
  
• Century Casinos Inc. (NASDAQ: CNTY) was initiated at Nollenberger with a Neutral rating, citing the underperformance of new properties and concerns from the smoking ban in Colorado; however, the firm believes the company is headed in the right direction.

OTHER INITIATIONS:

• Soleil started shares of Sunoco Inc. (NYSE: SUN) and Valero Energy Corp. (NYSE: VLO) with Buy ratings and targets of $96 and $88, and initiated shares of Tesoro Corp. (NYSE: TSO) with a Hold rating and $55 target.
  
• Rodman & Renshaw started shares of Labopharm Inc. (NASDAQ: DDSS) with a Market Perform rating.
  
• UBS resumed coverage on Kroger Co. (NYSE: KR) with a Buy rating and $34 target.

No surprise the volatile James Cramer of TheStreet.com carries the burden of having made the best and worst picks for the year among those I've been tracking monthly. Apple Inc. (NASDAQ: AAPL), the best performer among all the stocks and indices in this review, has saved his rear throughout the year. In general, it has been a good year for energy and tech stocks. It has been a poor year for the financial sector, and as of August, for most of the Wall Street investment firms.

August had some gut wrenching moments but finished on a positive note. Still, the Dow Jones Industrial Average's 14,000 level has not been seen since the financial sector gave the bears something to grouse about. The housing market and subprime loans continue to worry the market, but no help is expected in the form of rate cut from the Federal Reserve.

Crude oil prices have been up slightly, but down at the pump even through the busy Labor Day weekend and even with continued turmoil in Iraq. All the speculation about a Dow 15,000...16,000...17,000 has come and gone and I have not read about such silliness lately.

Valero Energy Corp. (NYSE: VLO) opened at $63.60. So far today the stock has hit a low of $62.93 and a high of $64.00. As of 11:00, VLO is trading at $63.50, down $1.09 (-1.7%).

After hitting a one year high of $78.68 in July, the stock fell hard as oil prices have been retreating over the past few weeks. Oil prices are slipping further today, as fears about storm damage in the Gulf of Mexico area are waning, bringing oil stocks down as well. Technical indicators for VLO are bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $80 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk and leverage returns. For this particular trade, we will make a 4.2% return in just 2 months as long as VLO is below $80 at October expiration. VLO would have to rise by 26% before we would start to lose money.

VLO has not been above $80 ever and has shown some resistance around $67.50 recently. This trade could be risky if crude prices spike higher due to tropical storms or unrest in the Middle East, but even if that happens, VLO could have trouble going higher than $78 where it topped in July.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: At publication time, Brent neither owns nor controls positions in VLO.

Valero Energy Corp. (NYSE: VLO) opened at $61.86. So far today the stock has hit a low of $60.37 and a high of $62.00. As of 11:00, VLO is trading at $61.00, down $0.80 (-1.3%).

After hitting a one year high of $78.68 in July, the stock has dropped sharply over the past month as the price of oil has been slipping in recent weeks. Oil futures are down again today, but also hurting the stock today is news of a weekend fire at the company's Port Arthur, Texas refinery. An early report notes that the fire was under control quickly and there were no injuries, but the company is still assessing the damage. Technical indicators for VLO are bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $75 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk and leverage returns. For this particular trade, we will make a 5.3% return in just 7 weeks as long as VLO is below $75 at September expiration. VLO would have to rise by 23% before we would start to lose money.

VLO has been above $75 as recently as early July, but has fallen steeply since and has shown some resistance around $69.70. This trade could be risky if oil prices get another big boost in the next two months, but even if that happens, it could be tough for the stock to get over the $74 level where its 50-day moving average lies.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in VLO.

Last December, over 100 stocks were featured in our Top Picks for 2007 report. Now, at mid-year, we turn to the 20 advisors whose picks showed the strongest gains to get an update on their previous picks, as well as a new favorite stock for the second half of the year.

Ken Kam, editor of Marketscope, chose Valero Energy Corp. (NYSE: VLO) as his top pick for the year; it rose 48%, as of June 1, 2007. Here is his original recommendation for VLO as well as his new favorite stock idea for 2007.

Updating his outlook on Valero, Ken explains, "Refineries were once regarded by Wall Street as nothing more than future hazardous waste sites. For much of the last 30 years, it made sense to keep money-losing refineries operating in order to avoid the cleanup costs of shutting one down.

"Things have changed a lot in the past five years. Today, there is no excess refining capacity and profit margins have soared. The demand for refined products continues to grow along with the economy, but there are virtually no prospects for any new refineries being brought online anytime soon.

"The refineries that were once disregarded are now literally worth more than gold mines. Yet refining companies still trade at single-digit P/E ratios. Valero trades at a P/E less than 7. The S&P 500 by comparison has a P/E of about 16.

Last December, over 100 stocks were featured in our Top Picks for 2007 report. Now, at mid-year, we turn to the 20 advisors whose picks showed the strongest gains to get an update on their previous picks, as well as a new favorite stock for the second half of the year.

Ken Kam, editor of Marketscope, chose two stocks in the Top Picks for 2007 report and both picks qualified him for our Top 20 Advisors. His selection of Valero Energy Corp. (NYSE: VLO) rose 48%. Here is his original recommendation for Valero and his current opinion on the stock.

In addition, Ken also picked Elan Corp. (NYSE: ELN) in our Top Picks 2007 report and its gain of 35% also qualifies among our Top 20 Advisors. Now, he is now re-recommending the shares as his current favorite for the balance of 2007.

The advisor explains, "Elan has been strong on rumors that Biogen (NASDAQ: BIIB) -- Elan's 50% partner for its multiple sclerosis drug Tysabri -- is interested in acquiring the company. Elan has also show recent strength on news that the company's Alzheimer's drug (AAB-001), which is partnered with Wyeth (NYSE: WYE), is being advanced to Phase 3 trials.

"When a stock makes a big move in a short period, there is a tremendous temptation to sell and 'lock in profits.' However, when the price move is accompanied with good news, the initial bump may be the start of a major move up. If you are too quick on the trigger, you may miss the bigger, longer term.

"I am very pleased with the performance of our energy investments and I particularly like the refiners," says resource expert Curtis Hesler. The editor of The Professional Timing Service has also owned Valero Energy (NYSE: VLO) and Frontier Oil (NYSE: FTO) since 2005, and despite their strong performance, he says, "You should try and work these into your holdings during weakness."

Hesler explains, "Refiners have the ability to refine sour crude, which is becoming more prevalent on the market as the sweet crude fields peak out. In this process, sour high sulphur crude will make up more and more of available supply to the distinct advantage of those few refiners that can process it.

And yes, he adds, crude oil production is "already peaking out." He says, "I think you will find that once the numbers are gathered, 2006 will become the official year that global crude oil production peaked out."

He notes, "Another aspect of sour crude is that it sells for a significant discount to sweet crude, and the difference goes straight into the refiner's profit column. You will pay the same price for gasoline no matter what type of crude it is made from.

Frontier, he observes, has the advantage of being located outside the hurricane regions, and it's not susceptible to storm damage like Valero. However, he says, Valero has the ability to efficiently make 'boutique' gasoline blends. And he adds, "It is estimated that for every penny that gasoline prices move up, Valero makes an extra $1 million profit!"

For more stock picks from the leading financial newsletter advisors, visit Steven Halpern's free daily website, TheStockAdvisors.com.

In my recent posts, I have been reviewing the most popular sectors for the coming year, according the the newsletter advisors who participated in the Top Picks from 2007 report. In my last post, I highlighted stocks in healthcare, tech, and telecom. Today, I want to review the resource sectors -- energy and metals -- that remain very popular among advisors, despite being out-of-favor in recent trading.

First, let's look at the metals, where gold remains a popular choice. Sy Harding chose ASA Bermuda, a closed-end gold fund, Curtis Hesler selected Yamana, and Martin Weiss opted for Kinross.

Pamela Aden selected the bullion tracking exchange-traded fund, the streetTracks Gold Trust; Mark Leibovit also chose streettracks Gold. Meanwhile, Mary Anne Aden chose the iShares Silver Trust.

Outside of the precious metals, Tom Bishop chose copper play, Taseko Mines, while Neil Macneale selected steel stocks.

Equally as volatile as metals -- and currently out-of-favor -- has been energy. The energy sector has been high on the list of Top Picks for the past 4 years. This year, however, there is a noticeable shift.