Pick of the Week: CNX

Clean energy is all the rage. In 2006, Al Gore presented his Hollywood spin on global warming, An Inconvenient Truth. The press took it from there. Now that everyone knows what carbon offsets are and which cars have the best MPGs, Green has become mainstream. Despite the press, Green has not become the gold standard in energy consumption. Still decades away from the new world order of energy, sometimes economic reality takes a while to catch up to marketing spin. Green may be the politically-correct topic at cocktail parties, but coal is the economically-correct vehicle for investors.

Coal has been an energy source for millennia. Prehistoric Chinese are said to have used coal for heating. According to Roman historians, Britain burned coal in the first century. Throughout history, coal has been the primary source of heat in homes. Then industrialization hit the western world. In the nineteenth century, coal use expanded as it fueled fires throughout Europe and the United States. Then, around 1900, oil replaced coal as the primary source of energy for heating.

Still, coal is the number 1 source of energy for electric power plants in the world. Rapidly industrializing nations like China are still dependent upon coal for energy. Overall global consumption has not diminished either. Coal fuels 48% of electricity plant generators. And the trend is heading upward — probably for the next 30 years. Despite the deafening rhetoric, coal is not going away anytime soon. Investors should take notice.

One of the best places to invest in coal is Consol Energy (CNX). Consol is a growing global leader in coal production and distribution. Compared to larger coal companies, Consol has kept expenses low. Their profit margins are running at 7.5% versus Peabody Energy (BTU) at 5.8% and Westmoreland Coal at -4.3%. Moreover, their diversified offering in oil, timber, and energy services continues to deliver results to their growing bottom line.

Consol’s prospects look good too. Because they own 70% of their coal reserves they are less hampered by mining acquisition costs. Management is taking advantage of global demand. Growing exports at over 18% a year, Consol is well-positioned for continued growth in the international energy market.

The chart suggests investors are starting to take notice. Today, CNX broke through overhead resistance. There does not appear to be anything else to stop it. Natural resources are near the top of our rankings right now. We’re not promising a meteoric rise, but the fundamentals support continued appreciation in the sector. Consol will be a great place to grab those gains if they happen. For an economically solid play on coal and natural resources, go with CNX.

All the best.

Note:

Keep in mind, the Pick of the Week is usually intended for aggressive investors. Don’t risk money you can’t afford to lose. You will need to decide when (and if) it is time to sell.