While most investors who either trade short term or invest for the long term have been in energy stocks for a while, despite the sagging overall markets, with the oils leading and continuing to lead the way, many are looking to an old energy source in a revitalized industry: coal. In the U.S., coal is still mined extensively and used in power generating, despite all the talk and some action toward “green” fuels. The coal industry has striven to mine and produce coal with fewer emissions when burned, though historically this has had a mixed record. There is, regardless, a huge foreign market for coal, particularly in China.
Peabody Energy Corp. (NYSE: BTU) is both a retail coal and mining company with operations in the Appalachian region of the U.S., Wyoming, and Australia. It mainly provides steam coal for electric utilities, along with metallurgical coal for steel-making (coke smelting). It sells to the U.S. and the Pacific Rim, mainly China. With a market cap of nearly $15 billion, and annual revenues of over $5 billion, it showed annual income of $600 million in 2006.
Although the industry slumped in 2007 and earnings fell correspondingly from $2.23 a share in 2006 to only $0.98 for the trailing twelve months, demand has already increased so revenues and income are expected to rise. Fourth quarter earnings were 71 cents a share, which missed estimates by 78 cents, but estimates for earnings are $2.86 in 2008, with robust demand resuming.
The stock has traded in a twelve-month range of 37.20-63.97, and is currently trading in the mid 50s. For fundamental investors, the stock should have plenty of upside in the next couple of years, while chart action suggests the stock is ready to rise near term.
Arch Coal, Inc. (NYSE: ACI), at $7.1 billion market cap and $2.5 billion annual revenue with $260 million income in 2006, is about half the size of Peabody Energy but a potent company. It mines and produces low-sulfur coal used in electrical power generation and industrial use, like Peabody. It followed a similar pattern of an earnings slump from $1.80 per share in 2006 to $1.20 in the last twelve months, 56 cents in recent reporting for the fourth quarter, and estimates are for $2.43 for 2008. The same improved economic conditions with heightened demand for coal for Peabody Energy are also expected to lift Arch’s earnings.
Arch Coal has traded at 27.76-49.58 throughout the last twelve months, and recently hit a new high which signals to many technical analysts the possibility of a breakout on its chart. Improved fundamentals for the company and the industry make Arch, like Peabody, attractive for many longer term investors as well.
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