More than 10% of the U.S.
Coal Supply Comes from this One Company
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By: Timothy Lutts
Editor
Cabot Wealth Advisory
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Published:
February 20, 2008
William Arthur Ward (1921-1994) said it like this: "The pessimist
complains about the wind; the
optimist expects it to change; the
realist adjusts the sails."
My thesis is simple: that the market
is always changing, and that to
succeed as an investor, you've got
to change with it.
Well, I think it's time to adjust
the sails, because as the market
works to build a base here, the
strongest stocks in the market are
coal stocks ... and never before in
my career have coal stocks been
attractive investments.
They're the odds-on favorite in our
office to lead the market higher in
the next major uptrend, and when you
stand back and look at the big
picture, you can understand why.
It's all about supply and demand.
The biggest reason for the strength
of coal stocks lies in China, where
demand for electricity continues to
grow. Last year, Chinese demand for
coal grew +9%. In the first half of
last year, China imported more coal
than it exported for the first time.
And this year, China's supply of
coal was reduced further by terrible
blizzards (the worst in 50 years)
that have led to a two-month
suspension of exports.
Added to that are flooding problems
in major Australian mines, and
rail-car shortages in Russia, all of
which mean supplies are thin.
Yet demand continues to grow, and
not just in China. In Japan, demand
is up because an earthquake damaged
a nuclear reactor last year, and in
India, demand is up because of an
expanding industrial base.
Ironically, there is plenty of coal
in the ground ... enough to last 150
years at current consumption rates.
(There's oil enough for only 42.
Figures from BP, formerly known as
British Petroleum.)
But the infrastructure to mine and
transport it is lacking, which means
continued growth in this area is
needed to meet demand. So today, I'm
recommending Arch Coal (NYSE: ACI,
$52.82 ), but only if you know
how to manage your risk.
Arch is one of America's largest and
most efficient coal miners; it
contributes roughly 11% of the
country's coal supply, mining
low-sulfur coal in Wyoming, Utah,
Colorado, West Virginia, Kentucky
and Virginia.
ACI is not quite as strong as some
of its peers, as the stock is still
below its mid-2006 peak in the upper
$50s. To us, the stock is unlikely
to simply move straight up from here
... but with big investors clearly
getting in, we don't expect a huge
price decline either.
I think aggressive investors who can
manage risk and cut losses short can
buy here; the bulls are in control
of this stock. Most investors,
however, should wait for a setup
with better odds, ideally including
a more supportive market.
Timothy W. Lutts
Editor
Cabot Wealth Advisory
About Timothy Lutts
[includes/bios/lutts.htm]
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