Coal: Another Chance at Landing a Bargain

By on October 17, 2011

During the financial crisis of 2008-2009 investors were offered a once in a lifetime opportunity to pick up stocks at bargain basement prices. I had my list prepared and snapped up as many as I could afford at the time. The list included such stocks as Whole Foods Market (WFM), Dillards (DDS), Dollar Thrifty (DTG), and Arch Coal (ACI). It was like shooting fish in a barrel. Unfortunately, I ran out of ammo and those fish got away and scored massive gains.

Recent weakness in commodities, including energy, has led to a collapse in the coal stocks. Arch Coal, which I helplessly watch climb from $10 to $35 is back down in the teens. A similar fate has befallen Alpha Natural Resources (ANR), Consol Energy (CNX), Walter Energy (WLT), and Peabody Energy (BTU).

Another option for investors is Joy Global, Inc. (JOYG), an $8 billion company engaged in the manufacture and servicing of mining equipment for the extraction coal, copper, iron ore, oil sands, and other minerals worldwide. JOYG traded below $20 back in March 2009 and had a meteoric rise to over $100 per share in the past 6 months. JOYG is currently trading at $78.82 and long term prospects appear to be bright.

For investors who desire more diversification and don’t mind paying expenses of 0.59 % annually there is the Market Vectors Coal ETF (KOL; see chart below). KOL has rebounded sharply from its low of $28.58 on October 3rd, but could still be a decent buy at its current quote of $36.42. KOL has traded as high a $51.87 in the past year. A factsheet on KOL is located at this link.

Coal is a play on worldwide economic growth. Rising wealth and increased proliferation of consumer electronics assures a growing need for energy. Emerging markets will likely jump start demand when the recent doldrums fade out of view.

Market Vectors Coal ETF

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