Is Coal the New Black Gold?

September 20th, 2010
| More
Contributed by: The Mad Hedge Fund Trader
After the halting and starting three week rally we have seen in stocks, I would be negligent to recommend equity plays here. But there is one sector you should add to your "buy on meltdowns" list and that is King Coal.

Demand from emerging markets, especially metallurgical coal needed to make steel, is absolutely exploding. Industry experts say a major super cycle of buying from China, South Korea, Japan, and Taiwan that is creating a long-term structural shortage for the black stuff. One of the reasons Warren Buffet's Berkshire Hathaway acquired the Burlington Northern Railway (BNR), was that it obtains 75% of its earnings from transporting coal to west coast ports for shipment to Asia.

The US currently derives 50% of its power generation from burning coal, and that dependence isn't changing any time soon. The only potential drag is the subterranean price of natural gas, to which many coal burning utilities may switch, if prices fall further. Not only do power companies have the environmental incentive to switch to relatively clean burning CH4, it is also cheaper on a dollar per BTU basis. However, this only affects the domestic demand for coal, not the foreign markets.

If the Republicans win the November elections, a regulatory back off will deliver a sudden boost to profitability, and you can count on perceptions to front run that. The new cost of recent regulations brought in by the Obama administration has already been priced in to these stocks. Some of the premier names to look at here include Peabody Energy (BTU), Massey Energy (MEE), and Joy Global (JOYG).
For Detailed Investor Profiles on these Investors, click below:
Berkshire Hathaway (Warren Buffett)
Related People: Charles T. Munger; Todd Combs; Warren E. Buffett
Related Entities: Berkshire Hathaway Finance Corp; Berkshire Hathaway Life Insurance; Berkshire Hathaway Reinsurance Group; Bill & Melinda Gates Foundation; GEICO; General Re; MidAmerican Energy Holdings
Related Article Tags: Investment Management, Fund Manager and General Financial News; Hedge Fund Resources and Featured Partner News


More Recent Headlines

Ivaldi Capital, backed by Citigroup, raises $500mm for launch

George Soros warns investors away from the ultimate gold bubble

Richard Grubman and Robert Rubin leave hedge fund posts

York Capital Management gets $425 million for non-controlling minority stake

Jim Pallotta takes a mulligan, launches Raptor Evolution Fund

Ramius makes another offer for Cypress Bioscience

Cheyne Capital raises $100 million for event-driven hedge fund

Theory Capital Partners closes down after just 10 months

Shareholder Activist Update: Discovery Group takes aim at Tier Technologies and Atricure

Citadel expands into Boston with new office