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TheStreet Open House

3 Ways to Profit from Coal's Eventual Rebound

NEW YORK (TheStreet) -- Despite signs to the contrary, there is a bullish outlook for coal over the long term. Recent reports from BP (BP), Caterpillar (CAT) and ExxonMobil (XOM) were positive. Even though there may be a "War on Coal" from the Obama Administration, the approval of the Keystone Pipeline should also be a boost eventually for securities such as Peabody Energy (BTU), the biggest coal company, and Market Vectors Coal (KOL), the exchange traded fund for the sector.

There is certainly no doubt that coal has a long way to rebound. Market Vectors Coal, now around $17.60 a share, is down from about $60 a share in June 2008. Peabody Energy was close to $90 a share at that time. Now it is around $16.50. The same story persists for other publicly traded companies in the coal industry. During 2008 and into 2009, manufacturing activity from big consumers like China, Europe, and Russia, among others, fell off.

Natural gas declined in price, which made it more attractive as an energy source to utilities. The "War on Coal" has made it more difficult for coal producers as it favors fuel sources that are more environmentally friendly.

According to the World Coal Association, a collective of major industrial coal producers and stakeholders, more than 40% of the world's electricity and about 30% of the primary energy needs come from coal.

Recent reports from BP and ExxonMobil predict that the use of coal also will increase in the decades ahead. The "BP Global Energy Outlook 2035" has the consumption of coal growing by 1.1% annually. ExxonMobil's "The Outlook for Energy: A View to 2040," sees the world's demand for coal rising until 2025.

In a recent earnings call, Doug Oberhelman, chairman and CEO of Caterpillar, the biggest heavy equipment maker on earth, remarked, "The good news is, mine production has generally been up and improved in 2013. And we think it will likely be up again in 2014."

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