A Lump of Coal

By Dian Vujovich

Once upon a time only bad kids got a lump of coal as gifts. Today, some are seeing a good side in that black messy stuff.

Since nobody knows the short-term direction of the stock market and talking heads are confused about where we stand with regard to this recession—are we deep inside it or headed out—a couple of investing experts are finding a new shine to the messy, dirty coal story.

In Louie Navellier’s Marketmail last Friday (www.navellier.com), experts there think coal stocks could benefit from our weak dollar and current market conditions.

From that May 8th newsletter: “Coal stocks have recently bounced back from big declines. Interestingly, if history is any guide, coal stocks may emerge as performance leaders in the energy sector. It can be argued that the stock market is in a bottoming process and as a result high beta oversold sub industries, such as coals stocks tend to benefit. According to Ned Davis Research, the May through June time periods have historically been very strong for coal stocks. They have also been the best performing stocks in the energy sector between bear market bottoms and recession ends.”

Last month, in an interview with Tim Guinness, chief investment officer of the Guinness Atkinson family of funds, and portfolio manager of their Global Energy Fund (GAGEX), I asked him what the deal with coal was. His answer: “Well, it’s the cheapest fossil fuel and it’s gonna last the longest. But coal is not going to remain cheap forever.”

Guinness doesn’t think that U.S. coal consumption will grow materially over the next five years “given the hostility of the current government and culture (toward it),” however he thinks prospects for it might actually grow if you look out five to 10 years. “But,” he added, “The place that’s ramping up the use of coal is China. And that’s what’s been driving the world price of coal.”

China, as we all know, has a huge population and while they have their economic woes, they also are an actively developing nation.

So even though you might not like the mess a lump of the stuff leaves on your hands, it’s a commodity that could be worth investigating for your wallets.