Editor's Note: Jon D. Markman writes a weekly column for CNBC on MSN Money that is republished here on
Now that we've got all the pious Earth Day documentaries, photo essays and public service announcements out of the way, it's time to get back to business.
And that means we need to talk about investing for the real world as it exists today, not as it might on some far-off date when all our modern conveniences are powered by love beads, sunshine and sugar beets rather than good old-fashioned oil, gas and coal.
I'd like to return attention to the companies that provide the motive force behind the electronics, vehicles and water heaters that have lifted us above the darkness and despair of the Middle Ages -- and I don't just mean the '70s.
Call it a portfolio for Un-Earth Day.
Coal in Your Stocking
Right now, right here, just for starters, you just have to have some coal-mining companies in your portfolio. Yeah, OK: Coal is stripped out of gorgeous Appalachian and Rocky mountains, it's filthy to handle, and its emissions blacken the sky. But look on the bright side: Nature, not man, made it a nearly perfect and highly economic fuel for power plants -- and it is plentiful in the U.S. Natural gas is slowly gaining on coal as fuel for electricity utilities, but it's way behind and will remain so for decades.
If this disturbs you, perhaps you should try living without your espresso machine, Pilates DVDs or broadband connection for a few weeks. U.S. electricity demand is rising at the rate of 1.5% annually because of all our new plasma-screen TVs, corporate and personal Internet use, iPod chargers and cell-phone towers. Think of all the incremental extra demands you put on the power grid today vs. 15 years ago, including your three home computers that are on day and night, and you realize the extent to which we have become electricity addicts.
Electricity doesn't come from the sky; it comes from coal, plain and simple, although hydroelectric dams, natural gas and nuclear fission lend a hand. Coal prices weakened last year as rising production and ample utility stockpiles provided too much supply in the market. But the supply-demand balance is improving for coal miners this year because of production declines of as much as 3.5%, according to federal regulators.
The reason: Central Appalachia coal miners have closed a lot of high-cost mines while Wyoming-area coal miners slowed production to better meet railroads' capacity to move the rocks south to distribution networks. All the while, a worldwide boost in natural gas prices has made that cleaner fuel less economical.
So which coal miners should you buy? That's pretty easy to answer, as there are far fewer miners than there are oil and gas drillers.
The low-cost leader in the U.S. is
, and it's also considered the best managed, with highly profitable operations in Australia that feed China directly.
But smaller miners
( FCL) are also good choices, as is the Canadian trust
( FDG), which pays a juicy 9% dividend to boot.
More diversified miners with major coal subsidiaries that I can strongly recommend are
of Australia and
of Canada. Pick one or two from the first group and one overseas, and you're covered.
Grab a Shovel
Coal can't be dug out of the earth without a lot of big equipment, so in our Unearth Day portfolio we just have to have some major earthmoving machinery makers. The two most important U.S. supershovel makers are
( JOYG), which sports a $5 billion market capitalization, and
( BUCY), which is a fifth the size at $1 billion.
They are both cheap, face expanding market opportunities overseas in China and Russia -- where equipment is hopelessly outdated and in need of updating -- and are run by experienced managers in Milwaukee. Buy either with a goal of at least a 20% profit over the next year.
For a foreign accent on the same idea, consider Finnish mining-equipment maker
, which I first
recommended a year ago. It's up 50% since, but with earnings growing and global growth prospect intact, its valuation supports at least another 50% move higher.
To transport all that coal, you definitely need a railroad or two. My favorites --
-- are both up a ton this year, but since valuations are still in line and prospects are good, you can buy them on pullbacks to $107 and $43, respectively.
And if you reflexively feel guilty about all the pollution you may be responsible for causing, then take a stake in
, too. It provides specialty chemicals and systems to coal-fired power plants to help reduce emissions of sulfur dioxide, nitrogen oxide and mercury. It's a very cheap, low-volume stock that can get to $25 to $31 over the next year or two, which would yield as much as 60%.
Build and Bury
To build all the infrastructure for the power plants, coal distribution and pipelines, governments and utilities worldwide rely on heavy construction companies. Some of the largest and most experienced are
, but probably the most undervalued name in the group is Halliburton spinoff
. Right now, the stock is in a downtrend, so buy only above $22.50 or $23.50.
For that foreign flair, again, look at Swedish-Swiss construction manager
, which was also first recommended a year ago but still looks very cheap to me and can be bought on pullbacks.
Surely no Un-Earth Day portfolio would be complete without some asphalt to pave paradise and put up a parking lot, so lastly turn your attention to
, which is structured as one of those master limited partnerships that I
wrote about two weeks ago.
Formerly known as Valero LP before being fully spun off from the refinery giant, NuStar is one of the largest independent operators of terminals and pipelines for the transportation of gasoline, diesel and ethanol, with 6,200 miles of pipeline and 35 million barrels of storage capacity.
To serve the fertilizer industry, NuStar also has plans to expand its current 2,000-mile ammonia pipeline that runs from the Gulf coast of Mississippi to Nebraska and Indiana. And in an effort to become a major player in asphalt -- a neglected niche in the industry which its veteran chairman believes will become a premium product -- NuStar purchased two plants this month.
Its chairman, a Valero founder and former CEO, put some of his own skin in the deal by buying $2 million worth of his company's shares on the open market on April 13 and March 29 at just a touch below the current price.
Now, for the unicorn chasers out there, I will throw you one idea for Un-Earth Day, too. Small-cap
, which collects used cooking oils and animal fats from restaurants and refines them into tallow, grease and proteins for the soap, pet food, cosmetics, livestock and leather goods industries, and now for biofuels. Its veteran managers know they have a formerly neglected commodity that could become very valuable and are considering plans to build biodiesel refining facilities to take advantage.
Darling is very cheap: At $7.30 a share, it is trading at around 16 times next year's estimated earnings per share despite growth well north of 25%.
As a skier, camper, cyclist and card-carrying Sierra Club member since the '70s, it doesn't give me any pleasure to make these observations. But it's valuable for investors to see the world as it really is, not as they wish it to be -- and after all, you can always tithe 25% of your profits to an environmental cause.
At the time of publication, Jon Markman owned Peabody Energy and Teck Cominco.
Jon D. Markman is editor of the independent investment newsletter The Daily Advantage. While Markman cannot provide personalized investment advice or recommendations, he appreciates your feedback;
to send him an email.