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Monday, January 10, 2011

Coal Play

Coal is:
- the largest source of energy for the generation of electricity worldwide.
- the largest worldwide source of carbon dioxide emissions.
- a major contributor to environmental destruction and it’s by products from production can be hazardous to both people and the environment.

- A good stock play.

- One, it is relatively inexpensive to mine.
- Two, developing countries, usually strapped with cash and investment capital, need it to generate electricity and further develop and sustain their economy.

Today, one of the biggest players in the coal market is China. The United States and former Soviet Union have the largest reserves, followed by China and Asia and associated Oceana areas.

This sets up a few very interesting plays on coal.

- One is obviously the demand for Coal through out the world and the increasing demand for it in China and the rest of developing Asia. This would mean taking a look at some of the major Coal producing and selling companies.

- Secondly, since Coal is in such demand and yet has obvious environmental impacts, the business of making Coal production ‘Greener’ should also see increased demand.

- Third and last but not least is the obvious transport of said Coal around the world.

According to Peabody Energy, "Coal's best days are ahead," fueled in part by exports of coal from the Powder River Basin in Montana and Wyoming that Portland General Electric taps for its Boardman plant. Peabody has also been looking to establish a new West Coast terminal to aid in expanding exports.

Among the better Coal energy stocks to look at are:

Peabody Energy Corp. (BTU)
Natural Resource Partners LP (NRP)
Puda Coal Inc. (PUDA)
Arch Coal Inc. (ACI)

Another interesting play on coal, mining and the natural resource field of investments in the Asia and South Pacific region is:

BHP Billiton Limited (BHP)

This diversified natural resource company in Australia has been particularly impacted, as have many Australia Companies, by the recent floods and in my mind is presenting an opportunity to buy in at a discounted price.

Since Coal production is so prevalent and in such good demand, it also stands to reason that finding new and better ‘Greener’ ways to produce it would also be in demand. One such stock popped up on my January watch lists.

Sino Clean Energy Inc (SCEI).

If you are looking for more diversification, perhaps less risk and exposure to potential alternative and clean energy plays within the Coal industry you can look at investing in an ETF such as (KOL).

As I mentioned before, obtaining the coal to sell to the world is one play. The other is transporting it around the world. In order to do this you need a fleet of cargo ships.

Some of the stocks and ETF that come to mind for this are:

DryShips, Inc. (DRYS)
Claymore/Delta Global Shipping (SEA)

Disclaimer: Currently invested in SCEI.


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