Coal Stocks – What You Need To Know

For years, the best coal stocks have been feeling the heat. Coal was the cheapest and main source of energy in America. However, in 2016 that changed when natural gas took its place.

While coal mining has been on the decline. Coking coal has seen demand steadily rise. Coke is a critical ingredient in the production of steel.

That said, when researching coal stocks, make sure to see what the company does and where their position is in the space.

The Best Coal Stocks

BHP Billiton (NYSE: BHP) – This resource company extracts and processes minerals, oil and gas. The firms business functions in five units. They are: Minerals Australia, Minerals Americas, Petroleum, Marketing, and Global locations.

Its coal assets are located in Australia and Columbia. BHP has a one-third interest in Cerrejon (Colombia), which owns, operates and markets one of the largest open-cut export energy coal mines in the world.

Not just a player in coal, BHP has substantial assets in copper, iron ore, potash, nickel, and petroleum.

The company has been around for over 150 years and is among one of the largest in the world. It’s headquarters are in Melbourne, Australia.

Teck Resources Limited (NYSE: TECK)- Canada’s largest diversified resource company. The company explores, develops, and produces natural resources in the Americas, Europe, and the Asia Pacific.

It’s the number one producer of steel making coal in North America. In addition, Teck is the second-largest seaborne exporter of steel making coal.

teck resources coal stocks

Source: Teck Resources Limited

Steel making coal is part of steel producing process. It’s used for building infrastructure like rail, bridges, and clean energy projects.

Outside of coal, the company has other products like copper concentrates, refined zinc, and lead concentrates. It also produces precious metals, as well as chemicals and fertilizers.

Teck Resources Limited has been in business for over 100 years and is headquartered in Canada.

Peabody Energy Corporation (NYSE: BTU) – This coal mining company operates under six segments. They are: Powder River Basin Mining; Midwestern U.S. Mining; Western U.S. Mining; Australian Metallurgical Mining; Australian Thermal Mining; Trading and Brokerage.

The firm has 23 operations, which include surface and underground mines located in the U.S. and Australia. In 2016, the company sold 187.8 million tons of coal to global electric utilities and industrial plants.

Characteristics Of The Top Coal Stocks

Valuation: The price to earnings ratio is generally in the low to mid teens.

Financial: They offer a dividend to investors. In addition, the best coal stocks have a double digit return on equity percentage.

Investors: They are primarily owned by financial institutions.

Trading: They are actively traded, which means the bid/ask spreads are competitive, meaning you don’t have to worry about slippage.

What Influences Coal Stocks

Government and politics have the potential to influence coal prices.  Certain aspects of coal have been on the decline for years. For example, the coal mining industry has a negative image of being a dirty fuel source. The environmental impact includes an increase in air pollution and the emission of carbon dioxide into the atmosphere.

On the other hand, coking coal is in high demand. Nations like China and India rely on it to help build their infrastructure as more of its citizens transition to urban life.

When President Trump was elected he vowed to save the coal mining industry. However, politics is just one factor. Supply and demand is another key factor. With the rise of renewable energy sources, coal faces many challenges.

Alternatively, it takes about 170 tonnes of coal to produce the steel in an average wind turbine.  That said, certain areas of the coal industry could perform better than others.

Pay attention to politics, as well as supply and demand factors. One of the best sources to find data on coal is the U.S. Energy Information Administration. It releases weekly data along with a slew of analysis and projections.

EIA data best coal stocks

Source: eia

Bottom Line

There are many factors that influence the state of the coal industry. Politics is one of those important factors. About a decade ago, fracking began to gain popularity, ultimately pushing natural gas into becoming the cheapest source of energy. A title that coal held for years.

A shift in policy has the potential to change the outlook on coal. If the cost to produce renewable energy becomes too high than coal might have more staying power.

With the world population set to rise, demand for global energy should remain steady. Who the energy leader will be is yet to be determined. Coal was once the king and has since declined. However, it would be foolish to say that coal is dead.

When investing in coal stocks make sure to see what other assets the companies have. A diversified company will have less risk than one that is a pure coal play. Per usual, make sure to do your own due diligence.

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