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A Big Income Opportunity in the Only Energy Uptrend I See

By Matt Badiali, editor, S&A Resource Report
Wednesday, June 29, 2011

In just under two months, oil prices have dropped 20% from their high. Natural gas is down 7% over that same period. And uranium, well... with Japan's Fukushima disaster, it hasn't been pretty. Spot uranium prices are down 30% from their February peak.
But coal prices are on the rise.
Coal is the energy source everyone loves to hate. But right now, it's just about the only one enjoying an uptrend. So should we pile into coal stocks here?
Before I answer that, you should know I like the long-term picture for coal.
The U.S. is addicted to it: We use it to generate around 45% of our electricity. China and India use it to generate more than 70% of their electricity. And as this chart and this chart show, their increased coal consumption has been one of the most relentless uptrends in the world.
The Fukushima disaster inspired a global pullback from nuclear energy. Germany's government, for example, will begin shutting down its existing fleet of nuclear plants in 2012. It will have to replace 153 million megawatt hours of electricity, which may eventually come from alternative sources, like wind and solar...
In the meantime, though, unless they want to shut off the lights, they're going to use more coal.
Coal prices vary from region to region and country to country. But that's mostly because the energy content varies between different types of coal. So we can get a sense of the global trend by converting a benchmark for U.S. coal prices (from Kentucky's Big Sandy power plant) into cost per million British thermal units (MMBTU).
Take a look...
As you can see from the chart, the price of coal has been in a solid uptrend since mid-2009. In fact, the trend has been up since 2002.
Here's the thing: The short-term trend for coal stocks doesn't look as promising. Since the start of the year, the big coal-producer fund (KOL) has been trading mostly sideways... and just recently touched a six-month low.
With investors skittish about all kinds of commodity plays, I want to take some uncertainty out of the equation. And I want to get paid while I wait for the trend to turn back up in coal stocks.
So in my S&A Resource Report, we're holding shares of Penn Virginia Resource Partners (PVR). Like our natural gas royalty trusts, Penn Virginia earns a royalty... in this case, from coal properties, as well as timber and other resources. It takes those income streams and pays out a solid dividend.
While the stock hasn't done much in the past eight months, the company is still paying out nearly $2 a share. At today's prices, that's more than 7% a year.
If coal prices turn down from here, PVR will suffer just like any coal stock. So we're holding it with a 25% stop. But if the uptrend in coal continues like I expect, PVR will break out of its sideways trend for a big run higher.
In the meantime, we'll collect our dividend and look for other big dividend opportunities in the coal sector.
Good investing,
Matt Badiali

Further Reading:

"Despite its 'dirty' reputation, the market is voting for coal," Matt says. "The world's newfound fear of nuclear power will give a tailwind for one of energy's biggest uptrends for years to come."
Nations will be forced to use coal for decades. But Brian Hunt points out another road that leads to the future of energy.

In The Daily Crux
Market Notes
The Swiss franc hits an all-time high vs. both the U.S. dollar and euro.
China Unicom is up more than 40% in a year.
Southern Copper plummets more than 33% in six months.
Aerospace suppliers Goodrich and TransDigm hit all-time highs.
Market Watch
Symbol Price
S&P 500 1296.67 +1.3% +20.7%
Oil (USO) 36.42 +2.2% +3.4%
Gold (GLD) 146.24 +0.4% +20.8%
Silver (SLV) 33.00 +1.1% +79.5%
U.S. Dollar 75.30 -0.4% -12.1%
Euro 1.44 +0.6% +17.0%
Volatility (^VIX) 19.17 -6.8% -33.9%
Gold Stocks (^HUI) 508.82 +1.6% +4.4%
10-Year Yield 3.05 +4.1% +0.7%

World ETFs
Symbol Price
S. Korea (EWY) 63.55 +1.0% +35.8%
Taiwan (EWT) 14.77 +0.4% +29.7%
S. Africa (EZA) 69.10 +2.3% +28.6%
Israel (ISL) 16.91 -0.2% +25.6%
USA (SPY) 129.61 +1.3% +23.0%
Russia (TRF) 21.30 +1.6% +21.5%
Singapore (EWS) 13.39 +1.0% +19.9%
Canada (EWC) 30.67 +1.7% +18.9%
Lat.America (ILF) 50.55 +2.1% +17.8%
Japan (EWJ) 10.19 +1.2% +9.8%
India (IFN) 29.76 +1.9% +7.5%
China (FXI) 42.60 +0.6% +6.2%

Sector ETFs
Symbol Price
Oil Service (OIH) 147.16 +4.1% +52.0%
Internet (HHH) 74.46 +1.0% +43.0%
Basic Mat (IYM) 77.29 +1.9% +38.4%
Retail (PMR) 21.10 +1.7% +31.5%
Telecom (IYZ) 24.68 +0.9% +30.8%
Industrials (IYJ) 68.68 +1.5% +30.0%
Consumer Svcs (IYC) 71.91 +1.5% +29.2%
Transportation (IYT) 96.38 +1.2% +28.4%
Semis (PSI) 16.47 +1.4% +26.1%
Real Estate (IYR) 59.56 +0.8% +25.5%
Big Tech (QQQQ) 56.07 +1.5% +25.3%
Health Care (IYH) 73.43 +1.5% +24.5%
Biotech (PBE) 22.31 +1.8% +23.7%
Software (PSJ) 26.24 +2.1% +23.7%
Media (PBS) 14.82 +1.4% +23.0%
Big Pharma (PPH) 70.46 +1.3% +21.6%
Water (PHO) 18.97 +1.4% +21.3%
Defense (PPA) 19.97 +1.1% +19.3%
Utilities (XLU) 33.19 +0.5% +19.2%
Construction (PKB) 12.92 +1.1% +16.6%
Insurance (PIC) 15.97 +0.0% +11.1%
Financials (IYF) 54.93 +0.5% +6.9%
Alt. Energy (PBW) 8.84 +1.3% +1.5%
Nanotech (PXN) 8.46 +0.7% -4.5%

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