Tags: coal | epa | stocks | energy

Forget About the EPA and Buy Coal

By    |   Wednesday, 11 April 2012 09:10 AM

Recent Environmental Protection Agency rules make it more expensive for U.S. utility companies to use coal.

The new rules have hurt coal stocks. After the unusually warm winter decreased short-term demand for coal, the stocks of coal companies are cheaper than they have been in more than 10 years.

Despite the EPA’s stance, other countries in the world have a growing appetite for coal and foreign demand has been increasing at a rate of about 15 percent a year. This makes it seem like now is a good time to follow Warren Buffett’s advice and “buy when others are fearful.”

Peabody Energy (NYSE: BTU) is a publicly traded mining company with about 9 billion tons of reserves. The company’s CEO thinks we are entering a “global coal super cycle.” With operations in Australia and the U.S., the company is in a great position to benefit from an increase in China’s growing demand for energy.

Arch Coal (NYSE: ACI) has reserves of about 5.5 billion tons of coal, a below market average price-to-earnings ratio, a well-covered dividend yield and is trading near its book value.

Income investors can consider Alliance Resource Partners (NASDAQ: ARLP) which is set up as a master limited partnership. With a dividend yield of about 7 percent and almost a billion tons of coal in reserve, this seems like an interesting investment for those worried about inflation and low interest rates.

Market Vectors Coal ETF (NYSE: KOL) offers a diversified investment into this sector. This ETF has recovered after falling about 50 percent last year and could deliver gains as the market for coal expands.

Government rules often trigger large gains in a sector. Coal may be the latest example of this and there are a number of low risk opportunities in the sector.

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Wednesday, 11 April 2012 09:10 AM
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