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An Energy Speculation That Could Make You a Fortune

By Brian Weepie, analyst, Stansberry Research Resource Report
Wednesday, April 23, 2014

Is anyone making money in coal right now?
 
The answer could help contrarian speculators make a fortune over the next few years...
 
Coal is probably the most hated fuel in the U.S. today... It's dirty and old-fashioned. Many folks are worried U.S. politicians will put coal-fired power plants out of business. And abundant natural gas supplies have pushed coal demand down over the past few years.
 
You see, natural gas is a direct competitor with coal as a fuel for electric power. And natural gas is cheap at less than $5 per thousand cubic feet today. This has spurred a massive switch from coal to natural gas. As demand for coal dropped, so did its price. The price collapsed from $118 per ton (for eastern U.S. coal) in 2008 to around $60 per ton today.
 
Lower demand and prices have been tough for coal producers. Many are exiting the business.
 
Consol Energy recently sold five of its coal mines. It will now focus on natural gas exploration and production.
 
Meanwhile, James River Coal, Patriot Coal, Trinity Coal, and America West Resources have all filed for bankruptcy.
 
But this is exactly what contrarian speculators like to see.
 
You see, natural resources like coal are tremendously cyclical. That means their prices move in waves. They go through big booms and busts. The best time to invest in natural resources is when everyone hates them.
 
After the market leaves a natural resource for dead, things often get better. Production drops to meet lowered demand. Eventually, demand picks up... causing prices to boom.
 
And contrary to what most folks think, coal isn't going out of style. As my colleague Matt Badiali showed you earlier this year, the world is still consuming huge amounts of the stuff.
 
That's why I like owning the beaten-down coal sector. But you have to be careful. If you buy companies that can't stop bleeding cash, you'll lose. If you buy companies that can still produce profits while prices are low, you can wait out the bad times and make big money.
 
So which coal companies are still making money?
 
To answer this, I searched for U.S. coal companies that are growing cash flow. The companies in the table below increased cash flow from operations last year. This is cash left over after paying normal operating expenses. They also earned enough cash to pay capital expenditures, or "cap-ex" (funds used to buy or upgrade assets like property, buildings, or equipment), dividends, and interest:
 
Company
Mkt Cap
Cash from Ops
Cap-Ex, Div, and Int Paid
Positive Cash Flow
Alliance Resource Partners
$3.1B
$704.7M
($558.4M)
$146.3M
Cloud Peak Energy
$1.3B
$180.7M
($155.8M)
$24.9M
Westmoreland Coal
$443.5M
$80.7M
($66.3M)
$14.4M
Source: Capital IQ
 
Of these, Alliance and Westmoreland also generated higher EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2013 than the year before.
 
I recommend digging deeper into these companies if you're looking to invest in coal today.
 
They have the cash flow to weather the storm. And they may be big beneficiaries of the next boom in coal.
 
Good Investing,
 
Brian Weepie




Further Reading:

"A small oil and gas company named Penn Virginia is soaring right now," Brian writes. "And knowing the reason why can make you a LOT of money over the coming years..." Find out what you need to know right here: Up 300% from the "Shift" in Oil Production... More Gains Ahead.
 
Frank Curzio reports that two other energy companies are primed to see a huge short-term boost in profits. "The U.S. House of Representatives voted to advance a bill that would eliminate the need for government approval of LNG export facilities," he writes. If the bill is approved, Franks says it will lead to "windfall profits in the industry..." Get all the details here: Congress Is About to Give These Energy Stocks a Big Boost.

Recent Articles
Market Notes
"Shift" in U.S. oil production helps send Penn Virginia up 130% over the past six months.
 
Get ready for higher food prices... big Ag fund DBA surges to a new 52-week high.
 
An amazing "bad to less bad" rally in airline stocks... Delta and American Airlines soar 200%-plus over the past 18 months.
 
A bullish sign from this "real-world indicator"... Harley-Davidson breaks out to a new multiyear high after announcing latest earnings.
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