Coal in Your Portfolio: Hot Stuff
Coal is the one energy resource of which the United States has more than enough. So how do you play it? Coal analyst Paul Forward of Stifel Nicolaus is the person to ask.
First, why is the coal market booming?
"We're selling more overseas," Forward told CNBC. "The emerging markets are finding that it's easier to build power plants than it is to get access to coal, and the U.S. is recapturing some long-lost market share...that tightens up those eastern U.S. coal markets."
Ramping up production, however, is easier said than done.
"There's definitely more coal to be had," he said. "We've got about a 250-year supply in the ground, but so far in the eastern states, total eastern U.S. coal production is flat, year-to-date."
Among coal-company stocks, Forward likes Peabody Energy.
"Peabody's the world's largest publicly-traded coal company," he said. "It's not in the eastern U.S., where we've seen [coal prices] move up, but one reason I like them a lot is that they're the biggest in the places that I think the utilities are going to turn to...the Illinois Basin...Wyoming...the growth areas in coal for the next three to five years."
He also likes Consol Energy.
"Consol is the largest Northern Appalachian coal producer," he said. "If you had to point to one area of the country where the utilities are in tight supply in the ground with their coal stockpiles, it's in Northern Appalachia...I think that benefits them more than anybody in the short run."
His third pick is Foundation Coal Holdings.
"They benefit as much as Consol does, because they're the No. 2 coal producer in that Northern Appalachian coal region, where...prices are high now, and we think they could get even higher as the summer goes along," he said.
Forward's firm expects to receive or intends to seek compensation from Peabody Energy, Consol Energy, and Foundation Coal Holdings for investment banking services.