Time To Buy Coal?

When it comes to the fuel of the future, many have been touting the advantages of natural gas for our economy, while others point to alternative energies to lead us into the future. But for some reason, coal rarely seems to enter the conversation, as many feel that it is a dated and no longer dominant resource. That argument seems to be subsiding however, as many are beginning to see the advantages of adopting coal as a larger part of our future energy strategy. After suffering for a few years, however, coal may be poised for a comeback not only in price, but also in prevalence [for more coal news and analysis subscribe to our free newsletter].

One of the biggest things that coal has weighing against its use is natural gas. NG had suffered a crippling slide since the 2008 recession began, meaning that it was cheaper than ever to use. Now that NG has showed signs of recovery, and prices are heading north, coal may see a resurgence. More expensive NG will mean a bigger opportunity to switch back to coal-powered energy. The U.S. is currently the second-largest producer of the commodity behind China, and this energy source has even worked its way into becoming a political battleground.

Mitt Romney has been very adamant about his plans to use clean coal should he win the election while Obama has gravitated towards other forms of energy. Should Romney edge out his competitor and snag the Presidency, coal would definitely see a massive jump. But even if President Obama is renewed for four more years, there is little that can be done about rising NG prices, which may force us back into coal anyways. After gaining more than 170% between 2009 and 2010, coal investments shed nearly 60% of their price from 2011 through today. This would certainly be a contrarian play given their price depression, but it could be a great asset to buy in on the cheap and ride out the rally. Below we outline three securities to help you make a play on this commodity [see also Three Commodities Dividend Lovers Must Own].

  1. Coal Futures (CAPP): The QL Central Appalachian Coal futures from the NYMEX will be the most direct method of investing, with contracts spanning out to December of 2016.
  2. Market Vectors Coal ETF (KOL): This fund, which has over $210 million in assets, holds global companies that derive more than 50% of their revenue from the coal industry [see also Three Forgotten Ways To Play The Mining Industry].
  3. Global Coal Portfolio (PKOL): A similar fund to KOL, but this ETF shifts more of its assets overseas to a number of Asian nations that dominate the supply side of the commodity.

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Disclosure: No positions at time of writing.

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