Investment pros name 2 stocks to play record-high coal prices
Coal prices are at record highs amid a looming global energy crisis, and market watchers believe prices still have further to go. The clean energy transition was expected to herald the demise of coal — the most pollutive of all fossil fuels. Instead, the price of thermal coal used for power generation has surged nearly threefold since the beginning of the year. The global push to curb carbon emissions has hit a roadblock as governments scramble to secure their energy needs amid supply bottlenecks caused by the Ukraine war. Russia’s move to cut off gas supplies to Europe has also forced the bloc to seek alternative fuel sources ahead of the cold winter months — including coal from Australia. How to play it Investors should buy coal-related equities to cash in on the booming demand, according to Peter O’Conner, senior analyst at Sydney-based boutique investment firm Shaw & Partners. “Coal equities across the globe will do well, and the tailwind they have had from their lows in June 2020 will continue to stay high. The cash they generate is extraordinary,” he said. “It’s almost like any or all companies are a buy.” His favorite stock pick in Australia is coal producer Whitehaven . Read more Wall Street pro predicts when the S & P 500 will rally — and reveals how to trade it Tesla or Rivian? Analyst sizes them up and gives one 190% upside Positioning for a ‘bullish shock’ to oil markets? Here are one strategist’s top stocks to cash in The company delivered a standout performance for the recent financial year, reporting record net profit and revenue. It also generated 2.6 billion Australian dollars ($1.79 billion) in cash from its operations during the period, a huge increase from the $169.5 million generated the year before. “Whitehaven could effectively buy back almost 10% of its company every month at the moment, given how much cash it’s generating,” O’ Conner said. The company also pays good dividends. Whitehaven has a dividend yield of 7.4%, which is significantly higher than the industry average of 3.5%, according to FactSet data. To be sure, there may be limited short-term upside for the stock after a meteoric rise this year. Shares in the company hit a 52-week high of AU$8.74 last week, giving the stock a gain of around 220% since the beginning of the year. But it remains a favorite among analysts, FactSet data shows, with a 71% buy rating on the stock. Meanwhile, Kenny Polcari, chief market strategist at Slatestone Wealth, named U.S. coal mining firm Peabody Energy as a favorite in the space. The Missouri-based firm has also benefited from soaring coal prices this year and shares of the company are up more than 100% since the start of 2022. Skyrocketing coal prices Meanwhile, coal prices look set to remain high for the foreseeable future. Spot physical coal loaded at Newcastle port in Australia was priced at $441.19 a ton on Monday, trading around an all-time high, according to Eikon data. Coal futures are also trending higher. Eikon data showed contracts for October delivery of Newcastle coal were priced at $430.60 Friday, after hitting an all-time high last week. Data aggregation platform Trading Economics has forecast coal prices to trade at $461.49 by the end of September, before rising to $551.06 in 12 months. O’Connor also expects coal prices to stay higher for longer. “With hydro production levels of electricity low and energy price in Europe very high, the price for coal will stay higher… if [coal price] stays above $425/ton…That’s a breakout of a medium term, very substantial charting position, which should set the trade higher,” he told CNBC “Street Signs Asia” on Friday.
