Certainties in an Uncertain Market
- How to bet against politicians
- My father-in-law’s favorite investment
- Profits from coal
While I would love to tell you that I’m bullish on stocks, the fact is that we remain in a secular bear market. For this reason, investors should heed caution, avoid speculation, and focus their investments on great companies in the commodity sector at cheap valuations.
Why? It’s very simple: commodities tend to do well during a bear market for stocks.
So what are the big certainties as far as I can tell? Sovereign debt problems aren’t going away, and the world’s politicians and central bankers are dedicated to the idea that they’d rather inflate their currency than default on that debt. They’re staking their currencies on the reputation that their currencies are still sound money. It’s a losing bet for central bankers and a boon for folks who trade in paper currency for real money: gold and silver.
But I’ve talked about gold and silver plenty over the past few weeks, and I’ve been neglecting a commodity that my father-in-law Ron Blackwell calls “the king of all resources.”
He’s talking about coal, and he’s absolutely right. It’s the king of all resources, because it’s responsible for close to 50% of all electricity generation in the United States. You can click here to view a pie chart showing recent electricity generation data from the Department of Energy.
But it’s not just the United States that uses lots of coal. The Energy Information Administration estimates that:
“Coal consists of roughly three-quarters of [China’s] power generation feedstock and the EIA forecasts they will maintain this market share through 2030.”
So if you’re not invested in coal, you’re missing out on some of the biggest and most certain profits in world history. While I’m bullish on precious metals, and I believe in the certainty that central bankers will continue to destroy paper currencies to avoid default, there’s an even bigger likelihood that the world will continue to use electricity - and that the lion’s share of electricity generation will come from burning coal.
If you like that kind of certainty, I’ve got good news. I know I’m guilty of teasing investments in this letter, and not always providing solid, actionable advice - but this trend is just too big and too obvious for subtlety.
So today I’m going to talk about one of my favorite ways to play the coal trend - no hype, no teases.
As I said at the beginning of this issue, I look for certainty, not speculation. That goes for macro trends as well as company specific details. There are plenty of micro-cap coal miners you can speculate on, but I’m more interested in companies that aren’t going anywhere, that are in politically safe regions that I know and understand.
That’s why I’m excited about CONSOL Energy Inc. (NYSE: CNX), a $9 billion coal company.
This company mines steam coal in the Appalachian region of Pennsylvania - and they have lots of proven coal reserves: nearly four billion tons to be exact. That’s enough coal to satisfy all coal demand in the United States for almost four years.
CONSOL mines more bituminous coal (the kind most often used in power plants) than any other U.S. producer.
So they’re one of the biggest coal companies in the United States, and they have extensive reserves. That’s a certainty I’d like to own in my investment portfolio. The company also happens to be one of the most inexpensive coal stocks in the market today, with a trailing PE under 17, and a forward PE of about 9.
To put this number in perspective, most of this company’s peers in the coal mining sector trade at valuations closer to 20-30 times earnings. So today, CONSOL is a true bargain
If you buy this company today, you’re getting your portfolio in front of a long-term trend that shows no signs of stopping. And it’s a contrarian play! While President Obama lectures us on the hazards of oil and touts alternative energy, the crowd will pursue pie-in-the-sky investments in unproven, unlikely technologies and fuels. In the meantime, your money will be safely nestled in the warm certainty of coal’s dominance in the energy market.
Coal’s not going anywhere, and neither is CONSOL Energy - so putting your money with this trend and this company makes good sense.
Today, CONSOL is selling for just a hair under $40. I think this company is a fair deal under $44, and a screaming steal under $36. I’d recommend buying this company in tranches, and holding it until we stop using coal. It pays a modest one percent dividend that I’d expect to rise along with coal prices.
If this type of coal investment seems too boring for you, I recommend checking out a smaller, more growth oriented coal company that sells coal in the Chinese market. So far, our readers are up 30% on this stock, and we think there’s plenty more upside in this stock, as China continues to use more and more coal to feed its growth.
If you’re interested, I invite you to click here now to read more details about this company from Chief Investment Strategist Ian Wyatt.
Good Investing,
Kevin McElroy
Editor
Resource Prospector
