The way to do that is with Peabody Energy , “the Exxon Mobil of the coal business,” as Cramer called it. On top of reporting a strong third quarter just last week, the company owns “the right kind of coal in the right kind of places,” namely overseas. Peabody should get about half of its earnings before interest, taxes, depreciation and amortization from Australia, which is in the same neighborhood as Asian countries doing so much of the stuff.
The seaborne thermal coal that’s used in power generation accounts for 60 percent of Peabody’s Australian volumes, and the Chinese may have imported 13 million to 14 million tons of its in September alone. Cramer thinks this segment of the business could be the driver for coal’s next big leg up, which would be great for Peabody because it has 8.5 million to 9.5 million tons still unpriced for next year. That would allow the company to take advantage of this kind of coal’s rising price.
There’s another segment here that’s worth watching as well. The pricing for metallurgical coal, used for making steel, is even stronger than thermal. And with Peabody having 9 million to 10 million tons of unpriced Australian metallurgical coal for next year, and another 11 million to 12 million tons unpriced for 2012, Cramer said, “This company is in a fabulous position to capitalize on those higher prices.”
There’s no question the domestic coal market is much weaker than overseas, though Cramer’s not concerned about that. The Environmental Protection Agency can huff and puff all it wants, but that most likely won’t affect Peabody, for two reasons. One, Cramer expects the EPA to be “reined in” after Election Day. And two, Peabody deals in the cleaner Powder River Basin coal rather than the dirty mountaintop mining kind that the EPA is focused on.
In the end, this is an international story, and Peabody has the assets to capitalize on it. Yes, there are other companies with exposure to Asia, like Alpha Natural Resources , CONSOL Energy and Massey Energy, but nowhere near the size of Peabody, which should get half of its sales from its Australian and international business going forward.
“You don’t have to like it … but we’re seeing a coal renaissance courtesy of Asian demand,” Cramer said. “And Peabody Energy is the best way to play it thanks to its large Australian operations. I would hold my nose, cover my mouth with a gas mask so I don’t breathe in any fumes, and I would buy, buy, buy.”
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