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If you want to invest in an energy resource that's cheap, has a dependable supply and a proven track record, don't forget about coal. In the very (very) long term, it may become obsolete, but for the foreseeable future coal is an excellent investment for an energy source that can immediately step in to cover the rising cost and dwindling supply of oil, while alternative energy sources need to be more fully developed before they can take over as primary suppliers of electricity and more.And if you're going to invest in coal, Peabody Energy Corporation (NYSE: BTU) is an excellent bet. Frequently considered the best coal producer in its class, Peabody has the resources and size to weather any blips in the sometimes volatile coal market. Its U.S. operation is immense -- in 2006, 20% of all coal mined in America was produced by Peabody, and today, 10% of electricity produced by any source is fueled by the company's coal.
By far the most profitable part of its American operation are the company's mines in the Western states, primarily in the Powder River Basin in Wyoming and Montana, which account for 75% of Peabody's production. By contrast, the Eastern states production is less profitable, mostly due to transportation problems. To that end, Peabody has recently spun off Patriot Coal Corp. (NYSE: PCX), based out of Appalachia and Illinois, which analysts say should reduce costs without having a significant impact on the income stream.
Beyond the U.S., however, Peabody is set up to take great advantage of the current coal boom in Australia, where the demand for metallurgical coal, which is used in steel production, is growing as Asian countries, particularly in India, are spending significant resources to build up their infrastructure.
In 2006, Peabody acquired Excel Coal Ltd (previously ASX: XEXL), a coal mining company operating out of Sydney, which tripled its presence in Australia. There are some problems on the Australian market, primarily concerning bottlenecks in distribution, but Peabody and the rest of the industry are investing in increased dock capacity to address the issue. The effects of that work won't be felt for another year or more, but as I think this is a company that will continue to grow at home and abroad, it will be worth the wait.
Type of Stock: Peabody Energy Corporation is the world's largest private-sector coal company.
Price Target: Bear Sterns estimates that this will hit $62 a share by the end of 2008. Buying in the mid-$40's would make for a potentially excellent upside return.
Hilary Kramer,author of the newly released Ahead of the Curve, is a financial editor and money coach for AOL and an authority on investing
In 2006, Peabody acquired Excel Coal Ltd (previously ASX: XEXL), a coal mining company operating out of Sydney, which tripled its presence in Australia. There are some problems on the Australian market, primarily concerning bottlenecks in distribution, but Peabody and the rest of the industry are investing in increased dock capacity to address the issue. The effects of that work won't be felt for another year or more, but as I think this is a company that will continue to grow at home and abroad, it will be worth the wait.
Type of Stock: Peabody Energy Corporation is the world's largest private-sector coal company.
Price Target: Bear Sterns estimates that this will hit $62 a share by the end of 2008. Buying in the mid-$40's would make for a potentially excellent upside return.
Hilary Kramer,author of the newly released Ahead of the Curve, is a financial editor and money coach for AOL and an authority on investing
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Reader Comments (Page 1 of 1)
11-14-2007 @ 11:14AM
Dan said...
I find your recent appraisal of Peabody Energy and Coal as the next fuel source in which to invest to be incredibly short-sighted and anachronistic.
Sure, if it were 80 years ago and people were struggling to strike it rich by digging for "black gold," coal might seem like a good avenue to add to your portfolio.
But times have changed. Being the most intelligent beings on this planet endows us with an inherent responsibility to protect this world's resources... to act as its caretakers.
The detrimental environmental effects of coal as a fuel source are well documented and experienced: ex. China that opens a new fuel-burning plant every two weeks only to exacerbate their plummeting air quality and environmentally related deaths.
To recommend these stocks as simply a way to make money with complete disregard for their impacts on this world and its generations is completely unconscionable.