When it comes to commodities, coal may beat oil and natural gas this year. Coal stocks are benefiting from disruptions in Australia to South Africa that are driving commodity prices higher. As a result, there may be more possible upside in the coal commodities market than in the oil market.
For investors, oil and natural gas are the only energy commodities. Why is it no one ever even talks about coal, which is also an important commodity and energy source?
Coal will continue to play a vital role as an energy commodity due to its importance in the entire world as an energy source. The run-up in commodities prices isn’t going to end soon.
With commodities like silver and gold, the prices are based on speculative demand and very little industrial demand for the metals. During the current run-up in silver and gold prices, loose global monetary conditions and the fear of inflation have served as the catalyst for record prices. However, interest rates are now rising in many countries, which will could lessen the potential of precious metals as an inflationary hedge.
Coal is at the industrial end of the commodity spectrum. And demand for coal is growing faster than oil and gas. Coal will remain the world’s most-used fuel for power generation through 2035, the International Energy Agency said in November.
Hence, the long-term fundamentals for coal are more robust. So Coal mines – not gold mines – could be the next key to investor profits in the commodities boom of 2011.
Cliffs Natural Resources Inc. (NYSE: CLF
) is a top coal stock to own for this commodity price boom. It is a mining and natural resources company that specializes in iron ore and metallurgical coal. Shareholders of Consolidated Thompson Iron Mines Ltd. approved selling the company to mining operator Cliffs Natural Resources for about $5 billion in February 2011. The newly acquired mines are ramping up to their full production capacity of 8 million tons of ore. They will increase in capacity to 16 million tons by the end of 2012, according to estimates.
Cliffs will benefit from its strong financials, with cash and equivalents totaling $1.6 billion. Estimates off a good quarter, with the current year up $2.45 in the last month to $12.71. The next-year estimates are up $2.77 in the same time to $13.66, a solid 7.5% growth projection. In spite of the gains, the valuation picture is solid, with a forward P/E of 7X and a PEG Ratio of 1 in line with the traditional benchmark for value.
