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The Best Plays in China's Coal Boom

By Frank Curzio, editor, Small Stock Specialist
Friday, December 3, 2010

Back in August, I told you to buy China's "consolidators."
 
You see, the Chinese government has selected a handful of coal companies to buy small up mining assets at significant discounts to the market. The country calls these companies "consolidators." And they'll help China regulate a fragmented industry that claims thousands of deaths each year.
 
China is the largest consumer of coal in the world. It generates about 80% of its electricity from coal-fired plants. And power-generating capacity is expected to increase another 10% this year. The International Energy Agency says it will be at least 20 years before coal's share of electricity generation in China falls below 75%.
 
In other words, China's demand for coal will last for decades, not just a few years. And these consolidators will be some of the biggest players in the coal industry.
 
My best "consolidator" play on China's appetite for coal is Puda Coal (PUDA). The government gave this small company the right to purchase mining assets for 20 to 30 cents on the dollar.
 
 
The thing is, the stock is up over almost 100% since my recommendation in August. My Penny Stock Specialist subscribers are cashing in. But after Puda's breakout, I wouldn't suggest buying the stock at these levels.
 
Fortunately, several other "consolidators" are attractive at current prices.
 
For example, L&L Energy (LLEN) is trading at $11. That's about a 30% discount to its 52-week high. It's also buying small mines at cheap prices. It trades for less than eight times earnings. And revenue growth year over year is nearly 400%.
 
Another consolidator is SinoCoking Coal (SCOK). This under-$10 stock is down about 50% over the past four months after a few weak quarters. But the stock is starting to trend higher. SinoCoking is trading at just five times 2011 earnings. It's expected to grow those earnings by more than 40% in the same timeframe.
 
Yanzhou Coal Mining (YZC) is the conservative play in the "consolidator" space. It has a market cap of $13.7 billion and pays a small dividend. Shares are trading at their 52-week high. But with over $1.5 billion in cash, the company won't have to raise money to purchase coal-mining assets.
 
China's demand for coal is growing – and will for decades. These "consolidators" chosen by the Chinese government have a huge competitive advantage. And every company I mentioned has incredible earnings upside.
 
It's not too late to jump on this long-term trend.
 
Good investing,
 
Frank Curzio




Further Reading:

 
You can read more about China's coal boom and why these "consolidators" have such a huge advantage here: The Coming China Coal Boom.
 
Porter Stansberry has another take on China's growing appetite for coal. "Coal is priced in dollars. But we stand on the verge of losing that advantage... and the consequences will be drastic." Get the full story here: How to Hedge Yourself from the Coming Fed Disaster.

In The Daily Crux
Market Notes
Coal trend gaining momentum… Peabody Energy and Arch Coal surge to fresh highs.
 
Small-cap Russell 2000 index soars 7% over the past month... large-cap Dow Jones lags at 2%.
 
"Safe" treasury fund TLT resumes downtrend… falls 3% in two days.
 
Railroad giant Union Pacific breaks out to new all-time high.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%