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JBL: Mining the New Black Gold

Having some coal in your stocking this Christmas will be a very good thing.

When you are bad throughout the year, rumor has it that at Christmas you will receive a lump of coal in your stocking. This year, I recommend you be bad because owning coal this Christmas is a good thing. Besides, being bad is more fun anyway.

There has been a terrific bull market in commodities this year, but energy prices have eased considerably since their summer peak. That's due, in part, to things returning to normal after Hurricane Katrina, milder weather, and a seasonally less demanding driving season upon us. Regardless, the pullback in prices has created a good entry point on energy stocks.

Both sides of the aisles in Congress are making sure that lower energy prices are temporary. They can't agree on new refineries, a uniform standard of gasoline, or fuel efficiency standards. This week, Congress browbeat the CEOs of major oil companies in the hopes of distracting our attention from the fact the politicians still have no plan.

Supply and demand for energy has not been addressed, nothing has changed: As a result, energy prices will resume their upward trend.

We are literally in the eye of the storm here; it seems calm, but it's not. We just had a large run-up in energy prices, and now we have seen a pullback. The rest of the storm is coming and the time to buy is during this calm period.

Wind and solar energy plans are dependent upon generous tax breaks to be cost effective. Natural gas has become expensive, even with a recent slide to $11.65 per million British thermal units. Undeniably, the cheapest form of energy is coal and it will increasingly replace natural gas as the preferred source of power for state and local utilities.

The old rub against coal energy was that it was bad for the environment, but technology has also made coal virtually as clean to burn as natural gas. This year, Santa's got a special gift for you: a bag of coal or, if you're really lucky, the following coal stocks.

Appalachian Coal

Consol Energy

(CNX) - Get Free Report

began operation in 1864, way before Loretta Lynn was a coal miner's daughter.

Consol Energy is the largest U.S. producer of coal from underground mines, with the second-largest amount of recoverable coal reserves among U.S. coal producers. Costs to mine coal have increased with, of course, energy prices. However, Consol Energy has managed to grow revenue faster than costs.

The 1990 Clean Air Act hurt Consol Energy because of the high sulfur content in its coal. But Consol's coal will become increasingly marketable due to sulfur-reducing scrubbers being added to utilities. These scrubbers are designed to neutralize the sulfur content of high-sulfur coal. These scrubbers are Santa's gift to Consol Energy and its shareholders, not to mention the environment.

With consensus earning estimates of $4.84 a share, you have a forward price-to-earnings multiple of less than 12. With a growth rate that is projected at significantly more than the multiple and the stock down nearly 30% from its 52-week high, you have a real bargain.

Consol also has a gas division, but my play on this has to do with coal.

My other pick,

Massey Energy


has had its share of problems, including labor issues concerning the hiring of qualified workers. It has also had shipping problems due to increased traffic with the railroads.

The company is addressing these problems by adding loading facilities in West Virginia, improving trucking, and training its own workers. Massey Energy says they will reach their goal of shipping 48 million tons of coal in 2006 compared to approximately 42.5 million in 2005, and 40.2 million in 2004. Massey already produces low sulfur coal that utilities like to use.

Like Consol Energy, Massey is about 30% off of its 52-week high. Massey Energy has a forward multiple of roughly 10 based on consensus estimates or earnings at $3.82 a share. The company's projected growth rate is in excess of the multiple, which gives it a P/E-to-growth rate under 1, which I love.

So have yourself a merry little Christmas this year, and buy coal stocks.

And remember my motto:

Being poor is bad, staying that way is stupid.

At the time of publication, Layfield was long Massey Energy, although holdings can change at any time.

A former All-America offensive lineman at Abilene Christian University, John Layfield played professional football for the then-Los Angeles Raiders and later in the World League. After wrestling in Japan, Mexico and Europe, Layfield arrived in the WWE in the mid-1990's. A former WWE Champion, JBL was a featured wrester at WrestleMania 21 and can also be seen on Friday Night SmackDown! on UPN.

Outside of the ring, 'JBL' is a self-taught investor who was recruited to write a personal finance book, "Have More Money Now," which was released in the summer of 2003. He has been seen on finance shows on CNN and Fox News Network. He is co-chairman of the Smackdown Your Vote! Campaign and he has joined both the USO and Armed Forces Entertainment (AFE) for tours through Iraq, Afghanistan and other Middle East countries. He regularly visits Walter Reed and Bethesda Naval hospitals to meet with wounded troops.