There was more bad news for coal stocks such as Peabody Energy (NYSE: BTU) and Arch Coal (NYSE: ACI).
The State of New York announced that it was spending $150 million to convert the power plant in Dunkirk to natural gas. There are only four coal-powered utility plants now in New York. The major reason given was that coal is much dirtier than natural gas.
This is happening all over the United States.
As natural gas has fallen in price, many power plants are converting. The lower cost in addition to the lower emissions makes it very appealing to switch over to natural gas power. As fracking improves, it is likely that there will be more choosing natural gas power. That will further reduce the demand for coal among utilities.
That is why blue chip coal stocks such as Peabody Energy are appealing.
The world is not going to stop using coal. It is still the most widely used source of power. It is very expensive to use natural gas. Three sets of pipelines are required to take natural gas from the ground to the home of the office for the end use. Coal, by contrast, by be dug up with a pick and shovel and carried around in a bag.
The prices and valuations of coal stocks such as Peabody Energy, Arch Coal, and the exchanged traded fund for the sector, Market Vectors Coal (NYSE: KOL), are certainly tempting. Barron’s had an article this year that was very bullish on Peabody Energy.
Arch Coal is down more than 40% for 2013. Over the same period, Peabody Energy, the largest in the coal sector, is off by nearly 30%. Market Vectors Coal has fallen by more than 20% since the first of the year.
Coal will not be rebounding anytime soon. Investors should only look at the most stable stocks in the group. As the exchange traded fund, Market Vectors Coal is very appealing due to its diversity in holdings.