Five ways to clean up in coal
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The fuel of the future, says Jim Jubak on Moneycentral.msn.com, is not natural gas. Nor is it uranium, solar power, wind or fuel cells (all of which sound good, but don’t really deliver). Instead, “for the next five years anyway”, it is coal.
Why? Because unlike everything else, coal is cheap and plentiful and its supply is not in any way dependent on the political stability ofthe Middle East. As Wilbur Ross tells Andy Serwer on CNNMoney.com, the US has more coal “than the rest of the world has oil”. No wonder then that the Department of Energy is projecting a 73% increase in consumption in the US from 1.1 billion short tons in 2004 to 1.9 billion in 2030.
So what’s the best way to invest? Credit Suisse First Boston tells Barron’s that the best place to look for good producers is around the Powder River Basin, “which continues to be the primary region of coal production growth in the US”. This means looking at Peabody Energy (BTU, $88.57), Arch Coal (ACI, $74.64) and Foundation Coal Holdings (FCL, $42.7).
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Jubak endorses the choices of Peabody and Arch, but also suggests that an even better way to invest in coal’s future is to ignore the miners themselves and look instead to the the firms that “make the steam turbines that allow utilities to turn coal into electricity”. Orders for coal-powered units are forecast to be 40% of the total over the next ten years, compared to just 20%-30% between 1997 and 2000. According to investment banking and brokerage firm Bear Sterns, the company most leveraged to the coal-fired steam turbine market, and which “holds the top market share in the steam turbine market”, is Alstom (ALS.PA, e65.00), which it forecasts will record average earnings growth of 20% for the next five years.
Jubak also highlights Headwaters (HW, $36.16) as a stock to own. The firm specialises in “cleaning coal, turning coal waste into useful building products and developing new technologies for turning coal into liquid fuels”. Apart from its obvious exposure to the coal market generally, increasing focus on the technological aspects of its business “should drive multiples on the stock well above today’s price to earnings ratio of 12 times trailing 12-month earnings per share”.
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