JBL: Mining the New Black Gold

Appalachian Coal

Consol Energy (CNX Quote) began operation in 1864, way before Loretta Lynn was a coal miner's daughter.

Consol Energy is the largest U.S. producer of coal from underground mines, with the second-largest amount of recoverable coal reserves among U.S. coal producers. Costs to mine coal have increased with, of course, energy prices. However, Consol Energy has managed to grow revenue faster than costs.

The 1990 Clean Air Act hurt Consol Energy because of the high sulfur content in its coal. But Consol's coal will become increasingly marketable due to sulfur-reducing scrubbers being added to utilities. These scrubbers are designed to neutralize the sulfur content of high-sulfur coal. These scrubbers are Santa's gift to Consol Energy and its shareholders, not to mention the environment.

With consensus earning estimates of $4.84 a share, you have a forward price-to-earnings multiple of less than 12. With a growth rate that is projected at significantly more than the multiple and the stock down nearly 30% from its 52-week high, you have a real bargain.

Consol also has a gas division, but my play on this has to do with coal.

My other pick, Massey Energy (MEE Quote) has had its share of problems, including labor issues concerning the hiring of qualified workers. It has also had shipping problems due to increased traffic with the railroads.

The company is addressing these problems by adding loading facilities in West Virginia, improving trucking, and training its own workers. Massey Energy says they will reach their goal of shipping 48 million tons of coal in 2006 compared to approximately 42.5 million in 2005, and 40.2 million in 2004. Massey already produces low sulfur coal that utilities like to use.

Like Consol Energy, Massey is about 30% off of its 52-week high. Massey Energy has a forward multiple of roughly 10 based on consensus estimates or earnings at $3.82 a share. The company's projected growth rate is in excess of the multiple, which gives it a P/E-to-growth rate under 1, which I love.

So have yourself a merry little Christmas this year, and buy coal stocks.

And remember my motto: Being poor is bad, staying that way is stupid.