3 Reasons To Be Long-Term Bullish on Coal
NEW YORK (TheStreet) -- Coal is the most popular fuel source in the world, according to the Institution of Mechanical Engineers. But it has certainly not been a favorite of the investment community of late.
Market Vectors Coal (KOL), an exchange traded fund for the sector, is down nearly 23% for the last year of market action. Over that same period, Peabody Energy (BTU - Get Report), the biggest publicly traded coal company, is off by just over 23%. Both are down for 2014, too. But there are three reasons to be bullish about the long term prospects of the coal industry.
1. Demand is starting to grow for coal.
The Power Ministry of India recently reported that the country's demand for coal had increased by 31% for the April to January period. India is the third-largest user of coal in the world. China, the biggest consumer, is expected to raise its consumption by 2.3%, according to the International Energy Agency.
2. The price of other fossil fuel sources is climbing as that for coal is falling.Along with coal, oil and natural gas provide the bulk of the world's energy supply. Unlike coal, however, the price for oil and natural gas has been rising. The United States Natural Gas (UNG) ETF is up more than 26% in 2014.
Over that same period, United States Oil (USO), an oil ETF, is up around 9.50%. That makes coal a more attractive fuel source, based on price. As an example, utilities in the United States are now switching from natural gas to coal due to the cost differential. 3. Coal is the easiest energy source to access and use, by far. No other type of fuel can beat the ease with which coal can be found, exploited and utilized. If so motivated, an individual can dig up coal, put it in a sack, and carry it home to burn for power or heat. Natural gas, by contrast, requires three sets of pipelines to get from the ground to the end user.
The logistics of transporting oil are challenging, too. Forms of alternative energy cannot be easily stored, unlike coal. In addition, installing various types of alternative energy power units can be prohibitively expensive. The coal sector is going through a rough period, as evinced by the prices for the securities in the sector. But the coal industry is not going out of business. Demand is increasing around the world at the same time that the prices for oil and natural gas are rising. That will make coal even more desirable as a fuel source in the years ahead. For investors, quality and variety should be the best way to profit over the long term.
Peabody Energy is considered to be the blue chip for the sector, with institutions owning more than 80% of total shares. As for variety, Market Vectors Coal holds more than 30 different stocks from the sector in its holdings. They both represent a potentially lucrative entry to coal investing. At the time of publication the author held no positions in any of the stocks mentioned. This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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