The King of Coal Reigns Supreme

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Like a horror-movie protagonist whose car won't start, the last thing investors want is to discover they're in the wrong vehicle when the stakes are highest.

With the global coal industry in the midst of a permanent structural transformation, the importance of selecting the right vehicle for coal has perhaps never been greater. Despite a 69% decline in fourth-quarter earnings from the mesmerizing profitability of the prior-year period, Peabody Energy (NYSE: BTU  ) remains supremely positioned to keep long-term investors moving through the uncertainty and upheaval of a shifting marketplace for coal.

This structural transformation refers to the emerging dominance of the Asia-Pacific region in shaping the dynamics for global coal trade. As Peabody CEO Gregory Boyce confirms, "China and India have permanently changed the seaborne metallurgical and thermal coal market landscape." Peabody enjoyed a 37% increase in Australian coal shipments during the second half of 2009 compared to the first half, and overall Australian exports reached a record annual mark of 277 million tons. Peabody anticipates a further 8% growth rate in seaborne Pacific coal markets for 2010.

China and India form the heart of that expanding demand, and this is no mere temporary spike. Although India's imports of thermal coal rose 60% in 2009 to 57 million tons, stockpiles remain low, while demand is set to expand further still. The 72 gigawatts of new coal generation coming online worldwide in 2010 corresponds to a further 300 million tons of annual thermal coal demand, and India is leading the charge with 55 gigawatts currently under construction. China, despite its vast hoard of coal resources, shifted to a net importer in 2009 to the tune of 70 million tons of thermal coal.

Meanwhile, back in the USA, the enormous stockpiles of coal accumulated by utilities in 2009 is finally showing signs of shrinkage. As railroad operators such as CSX (NYSE: CSX  ) and Burlington Northern Santa Fe (NYSE: BNI  ) witness grueling deterioration of coal volumes shipped, Peabody's observation that stockpiles fell at a record clip in December suggests some measure of relief on the horizon. Particularly for Appalachian miners such as Massey Energy (NYSE: MEE  ) and Consol Energy (NYSE: CNX  ) , where geography isolates miners from the seaborne Pacific trade, Peabody's expectation for domestic consumption to increase by about 70 million tons forecasts measurable stabilization within the domestic coal markets.

Coal miners rewarded shareholders generously during 2009, and Fools who heeded my bullish sector call probably enjoyed some tidy gains. I am not often a fan of sector ETFs, but the Market Vectors Coal ETF (NYSE: KOL  ) offers an enticing combination of domestic and international holdings. Shares of Chinese producer Yanzhou Coal Mining (NYSE: YZC  ) have abruptly shed 18% over the past few weeks, prompting this Fool to add the stock to his silverminer CAPS portfolio.

If I am tasked to select one top vehicle for coal, however, Peabody reigns supreme. With an aggressive capex budget above $600 million to support a doubling of Australian production capacity by 2014, a stable revenue source from quality U.S. mining assets like Bear Run, and a foot in China's door, Peabody Energy sits upon a throne of strategic strength that competitors can only dream of. When an inevitable price correction or market disruption comes around again, Peabody investors will remain calm in the comfort of a vehicle well chosen.

The "Coal" tag in the Motley Fool CAPS community lists 26 companies. Find out what other investors are saying about the stocks you're watching, or share your Foolish thoughts with us. CAPS is free and fun!

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly in the CAPS community under the user name TMFSinchiruna. He tweets. He owns shares of Peabody Energy. The Motley Fool and its disclosure policy are firmly coupled.

Read/Post Comments (0) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1095527, ~/Articles/ArticleHandler.aspx, 10/24/2016 6:26:00 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 3:59 PM
BTUUQ $16.07 Up +5.48 +51.75%
Peabody Energy Cor… CAPS Rating: *
BNI.DL $100.21 Down +0.00 +0.00%
Burlington Norther… CAPS Rating: *****
CNX $16.79 Down -0.62 -3.56%
CONSOL Energy CAPS Rating: ***
CSX $30.41 Up +0.12 +0.40%
CSX CAPS Rating: ****
KOL $13.04 Up +0.04 +0.31%
Market Vectors Coa… CAPS Rating: ****
MEE.DL $0.00 Down +0.00 +0.00%
Massey Energy Comp… CAPS Rating: ***
YZC $8.05 Up +0.39 +5.09%
Yanzhou Coal Minin… CAPS Rating: *