Coal Play

by Jay Pestrichelli on April 13th, 2012

On Wednesday the Wall Street Journal put out a story about the opportunity in Coal: Some investors see makings of Coal-Share Resurgence. It made the case that coal is approaching its bottom and outlines 4 companies that should benefit from a move up. Those were Peabody (BTU), Consol Energy (CNX), Arch Coal Inc. (ACI) and Alpha Natural Resourcse (ANR). It came along with a nice little graphic as well, seen below.
The 10,000 foot overview of the article tells us that much of the decline of coal use due to conversion of power plants to natural gas is over and that right now it is priced as a bargain.

We’ve discussed recently about how some of the transports like Norfolk Southern (NSC) have taken some lumps because of the warmer winter and the lower coal prices. So while its not a direct play on coal, it can indirectly have move higher on good news. NSC reports on April 24th and although the expected lower coal deliveries will have an impact on Q1 numbers, the bigger piece of info to watch will be the impact the recovery is having on the transport business.

If you’re interested in a direct play in coal, consider the ETF, KOL. It does a decent job of providing exposure to a coal recovery. KOL is not a futures based ETF, so we don’t have the tracking issue of contango. Instead, it invest more than 80% of its assets in stocks that are principally engaged in the coal industry. We usually say play an index vs. trying to pick the winner and we feel that way as well on this potential opportunity. As seen below, the ETF outperformed 3 out of 4 of the previously mentioned stocks.


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