"We're continuing to emphasize conventional energy, solar, shipping, agriculture, and commodities," says Harry Domash, who adds, "But one industry we've overlooked so far is coal."
In his Winning Investing, he explains, "This month, we're adding two coal industry picks. One, a short-term play to capture the action in hot coal mining stocks, and the other, a long-term dividend-paying investment."
"We've avoided coal primarily because environmentally speaking, coal is bad news. Coal is mostly used to generate electricity and to power steel plants. Crude oil prices are so high because supply can barely meet demand.
"Think about what would happen to oil prices if coal wasn't available. Due to increasing global demand, coal prices are moving up dramatically and it doesn't make sense for us to ignore that.
"For longer-term investors, we recommend Natural Resource Partners (NYSE: NRP), a master limited parternship. The MLP owns coal properties in the Appalachia, Illinois Basin, and the Western U.S. NRP leases its properties to mine operators.
"Natural Resource Partners does not bear operating expenses. It simply collects royalties based on the gross revenues received by the operators.
"Spurred by the growing emerging market economies, global consumption of coal is growing faster than production. Triggered by that demand vs. supply imbalance, coal prices have more than doubled over the past year. Since mine operators generally sell coal under long-term contracts, it will take some time for the coal price increases to be reflected in NRP's revenues.
"Nevertheless, analysts are looking for 30% revenue growth, 28% earnings growth, and 11% distribution (dividend) growth this year. All of those numbers are likely to be exceeded.
"NRP will report its June quarter results on August 11. Analysts expect NRP to report earnings of $0.40 per unit (share), up 43% vs. year-ago. Its next dividend is scheduled for July/August. We expect at least $0.52 per unit, up 5% over its previous payout.
"For a shorter-term play on the sector, we recommend Market Vectors Coal ETF (NYSE: KOL) an exchange-traded fund that trades like a stock and gives you a way to profit if coal stocks continue to move up.
"Driven by rising demand, coal is in short supply and coal prices have doubled over the past year. The market noticed, and most coal-mining stocks have soared along with coal prices. But so have earnings, and despite the run-up, coal stocks are not overpriced.
"The fund holds 40 stocks, mostly coal miners. Foreign stocks make up almost half of the portfolio, including several in China. Market Vectors Coal is new. It only started trading on January 15. It has gained 36% since that date.
"However, it's risky business. Even if coal prices continue strong, coal stocks could drop for all sorts of reasons. This play is or speculative funds only, recommended for a holding period of 2 to 6 months."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
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