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Six Ways to Invest in the Coming Coal Boom

I have seen the fuel of the future.

It's not natural gas. That was the fuel of the future in 2000.

It's not uranium. That might be the fuel of the future in 2015, if the new generation of nuclear plants turns out to be as good -- once someone builds one and operates it for a while -- as their proponents hope.

It's not solar or wind or fuel cells, either. But they could give nuclear a run for its money by 2015 -- if government subsidies produce enough of a market to drive costs down further.

Nope. The fuel of the future is coal. For the next five years anyway.

My prediction is based on nothing more or less grand than this: Coal is cheap, and the coal supply is stable.

I think investors can count on coal stocks, such as Peabody Energy (BTU - Get Report) and Arch Coal (ACI - Get Report), to continue to outperform the stock market -- on average -- for the next five years.

An even better bet, however, are the shares of the companies that make the steam turbines that allow utilities to turn coal into electricity. I'd put General Electric (GE - Get Report), Germany's Siemens (SI) and France's Alstom in that group. And, of those, Alstom would be my favorite.

Exactly how cheap is coal? Really, really cheap when you compare it with other fuels used to generate electricity. In December, according to the investment bank Natexis Bleichroeder, U.S. coal sold for the equivalent (taking into consideration the different energy content of the two fuels) of natural gas priced at $3 to $4 per million BTUs. In December, the spot price of natural gas hit $15.50 per million British thermal units. On Jan. 19, after a monthlong selloff, natural gas sold for $8.59 per million BTUs. Even if the price of natural gas falls further -- to, say, $7 per million BTUs -- coal will still be about half as expensive as natural gas.

Building Steam

Think utilities may have noticed? Last week, GE, Siemens and Alstom, which are three of the world's big makers of turbines for electricity generation, told The Financial Times that they were seeing a shift in their orders to steam turbines for coal-fired utility plants from natural-gas turbines. According to the three, coal-powered units will make up about 40% of all orders for electricity turbines in the next 10 years, with the share for natural-gas-fired turbines falling to 25% to 30% of orders.
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SI $0.00 0.00%
ACI $0.51 10.87%
BTU $3.50 3.60%
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GE $28.35 0.25%


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