Venture Capitalists, Check Out Coal, Gold and Shipping Stocks

NEW YORK (TheStreet) -- Coal, gold mining and shipping sectors are appealing right now to venture capitalists. These daring marketeers will invest in a wide range of companies, hoping one or two become the next Amazon (AMZN) or Google (GOOG) . 


The most prominent example of an individual doing this in stocks was the legendary investor Sir John Templeton during The Great Depression. He bought 100 shares of every company on the New York Stock Exchange selling for less than $1 during the Great Depression. When recovery came, he made his fortune.

None of these are going away forever. But the exchange traded funds for each are down in the present bull market rally: Market Vectors Coal  (KOL) is off by 0.46% with the Standard & Poor's 500 Index (SPY) up more than 9% for 2014. iShares MSCI Gold Miners  (RING) is down more than 3% for the last year. Close to $29 in June 2010, Claymore Delta Global Shipping  (SEA) is now trading at less than $22.80.

Many individual companies in these sectors are still struggling. There have been many bankruptcies due to the Great Recession. But it is getting to the point where those remaining firms will most likely survive. That can be seen in how the exchange traded funds for these industries have rallied in recent market action. Claymore is up 4.69% for the last month. Over that same period, iShares rallied by 2.56%. The last four weeks of trading has witnessed a 3.26% spike for Market Vectors Coal.

That should embolden investors to call on their inner Sir John Templeton and look for bargains.

There is certainly no shortage of publicly traded companies that appeal to a wide venture capitalist type portfolio. A quick search on Finviz brings up 14 shipping stocks selling for $5 a share or less. In the coal group, Arch Coal (ACI) and Alpha Natural Resources (ANR)  both trade at less than $4 a share. Arch Coal traded at more than $77 a share in June 2008. At that time, Alpha Natural Resources was trading higher than $108. Finviz has 29 stocks under $5 a share in the gold sector.

How to proceed?

Coal should be the most attractive sector as it is the fossil fuel that is increasing most in use, as detailed in a recent article in TheStreet. Investors are also starting to gobble up coal assets, too. That is also happening with shipping. There is no economic use for gold like that for coal and shipping, but if inflation and political stability look to increase, so too should the price of the yellow metal.

Most important of all, complete a thorough due diligence process before investing. Try to avoid debt as much as possible. Stay away from stocks with huge short positions (more than 5% is considered to be troubling). Look for institutional ownership and insider buying as it is comforting to have those with more resources and a greater knowledge of the company owning the stock in a down industry. If the company has a consistent dividend history, even better as that is an impressive show of strength, especially when a sector is in disfavor.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


 TheStreet Ratings team rates ARCH COAL INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation: 

"We rate ARCH COAL INC (ACI) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, weak operating cash flow and generally high debt management risk."

You can view the full analysis from the report here: ACI Ratings Report

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