Is coal the next oil?

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coal stocks

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It seems as though coal and oil are beginning to coincide. When oil prices are high, coal prices jump because of a very small connection between the two. Certainly, the price is helped by the “clean coal” initiatives around the world that hope to reduce pollution and the emission of dangerous substances. Coal is growing in popularity and in price due largely to demand coming from emerging markets.

Emerging markets chew through coal

In lesser developed countries around the world, coal is the energy source of choice. It’s cheap, it’s everywhere, and it can be easily converted to electricity. And while coal emits much more pollution than other sources, it flies under the radar of emission limits in emerging markets.

A play in coal is nearly a direct play on the growth of emerging markets, though the benefit is that coal is limited in supply. As demand for coal grows, so does its price; it’s likely that prices will rise far faster than consumption, similar to how prices moved for oil. The biggest emerging markets that are seeking out coal for energy and other uses are numerous. China, Russia, Brazil, and India are major consumers of coal. There is no shortage of markets seeking coal and plenty of reasons to invest in coal companies.

Clean energy isn’t yet a danger

The world can’t conform to cleaner energy as quickly as it would like, and that is one very critical reason an investment in coal should be considered. Though developed markets aren’t taking to coal like they used to, economic development in previously 3rd world countries will drive the price of coal upward as it competes with oil for the title of powering the world.

Peabody (NYSE: BTU) should be on the radar of any investor who is seeking a good deal on a coal company. Though it currently trades at 50 times earnings, the company is experiencing growth rates to fit. The expected growth rate is 56%, which is only further compounded by higher prices for the commodity. At a PEG of .89, this stock is cheap.

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