China is the world’s largest consumer of coal. When the Chinese industrial machine is roaring, the coal sector should be strong, too. The recent data that Chinese manufacturing is at a six-month high is much needed good news for coal stocks.
While an efficient fuel, coal is very dirty. Natural gas have become much more popular, especially as it falls in price. “The War on Coal” by The Obama Administration has done a great deal of damage, too. That is certainly seen in the stock prices: For 2013, the exchange traded fund for coal, Market Vectors Coal, NYSE: KOL), is down by more than 20%.
Peabody Coal (NYSE: BTU), the world’s largest private coal firm, is down more than 30% for the year. Alpha Natural Resources (NYSE: ANR) is off by almost 40%. BHP Billiton (NYSE: BHP), which has interests in coal and other natural resources, is down by more than 13%.
Increasing Chinese demand will do much to revitalize these stocks and others in the coal industry.
Coal still provides most of the world’s electricity. There are many advantages to coal as a fuel. A major one is that it is easily transported: Natural gas requires three sets of pipelines while coal can be carried in a sacks.
For investors, the exchange traded fund, Market Vectors Coal, Peabody Coal, and BHP Billiton are prudent ways to profit from the sector. Market Vectors Coal gives you a broad base: the entire industry will not go bankrupt. Peabody Coal was the recent subject of a bullish article in Barron’s, focusing on its undervalued assets. BHP Billiton has a wide resources base.
Both Peabody Coal and BHP Billiton pay a dividend, so shareholders receive income waiting for the recovery.