Six Ways to Invest in the Coming Coal Boom

My favorite isn't Siemens, either. I owned Siemens from November 2005 through January 2006, for a 23% gain. The stock now looks like it's correcting from that rocket ride -- news of a bribery investigation at one of the company's subsidiaries hasn't helped -- and I'd prefer to buy these shares after the selloff is completed.

My favorite in the sector is Alstom. The Paris-listed company has undergone a restructuring even more extensive than Siemens', and in 2005 the work started to pay off. The restructuring under CEO Patrick Kron, who joined the company in 2003, repaired a balance sheet that was seriously overleveraged. Orders have picked up -- climbing 66% in the third quarter of fiscal 2006, a number the company reported on Jan. 12. That in turn has stabilized operating margins in the power-turbine business -- at a projected 2.3% in 2006 -- and given credibility to projections of 6% to 7% operating margins by 2008.

The company is highly leveraged to the power-generation market -- more so than either General Electric or Siemens -- with about 80% of earnings before interest and taxes coming from the power-equipment and service markets. And although the company sells equipment across all fuel types -- coal, gas and hydro -- it is much more leveraged to the coal-fired steam-turbine market than its larger competitors. Alstom holds the top market share in the steam-turbine market, according to Bear Stearns, which also projects annual average earnings growth of about 20% for Alstom over the next five years.

Alstom is listed only on the Paris market -- it doesn't trade as an ADR, or American depositary receipt. Buying Alstom will get you foreign ordinary shares, exactly the same shares that trade on the Paris exchange. Be careful when you buy -- try a limit rather than a market order -- because the bid/ask spread can be high. It was almost $1 a share when I checked on Jan. 20. You may also have to pay an extra commission charge to buy the ordinary shares. An electronic brokerage firm I use regularly quoted me an extra $50 fee.

Despite all those hurdles, I still think Alstom is worth it as the best pure play I've found on the trend toward coal.