Most materials firms have struggled mightily in 2013, as
sluggish demand from key markets, a strong dollar, and a booming
stock market have dulled the appeal of commodities. While this
trend has been especially prevalent in precious metals, more
industrial resources have also been impacted by the trend.
Take for example, coal, as the important (but unloved)
commodity has struggled to post gains for 2013. Plus, the product
remains well below its highs before the 2008 crisis, trading at
just a fraction of its once lofty price.
Coal is also falling out of favor with many investors thanks
to the rise of alternative fuel sources. These include not only
which has been having a banner 2013
-but natural gas as well. In fact, natural gas, thanks to
fracking and other new technologies, has become more ubiquitous
and thus a popular fuel input for power plants instead.
These factors have been disastrous for coal miners, with
several going bankrupt or facing sluggish stock prices. Some are
even beginning to write off much of the industry, though a recent
earnings report could suggest that the worst might be over for
Peabody Earnings in Focus
Peabody Energy (
is the largest U.S. coal producer, and as such can be seen as
somewhat of a bellwether for the space. The company has faced
extreme weakness but its latest earnings report came as a bit of
a surprise to the market.
The firm was expected to lose five cents a share for the
quarter, but posted results of 33 cents a share, thoroughly
crushing estimates in the process. Though
sales did miss estimates
, the enormous beat on the bottom line and the shocking level of
profitability came as a huge surprise to the market, and helped
to push shares of BTU up over 7% on the day.
Beyond this solid beat, things could be looking up for the
industry thanks to some broader industry trends. Natural gas
prices have been pretty firm lately, while scorching weather
across much of the U.S. has increased electricity demand (also
3 ETFs for a Nuclear Power Renaissance
These two factors have helped to boost coal demand as a
substitute fuel, and this could increase if natural gas prices
stay relatively high. In fact,
the EIA revealed
that coal consumption in the U.S. rose about 9.5% in the quarter,
while they are also looking for domestic use to increase 6.7%
this year thanks to heightened electricity demand.
How to Play
These trends could suggest that coal stocks may have finally
bottomed out and that now might be the time to take a closer look
at the space. However, the segment can be extremely volatile, so
a diversified look-such as with a coal ETF-could be the preferred
way to go.
Fortunately for investors seeking to go this route, there is
one coal ETF available, the
Market Vectors Coal ETF (
. Below, we have highlighted some of the key details regarding
this ETF for those seeking to make a play on this beaten down but
potentially well-positioned sector for the months ahead:
Coal ETF in Focus
KOL was launched in 2008, giving investors exposure to the
Market Vectors Global Coal Index. This benchmark provides access
to 34 companies from across the globe that are engaged in some
aspect of the coal industry, charging 59 basis points a year in
Are Coal ETFs Back on Track?
Although it holds stocks across the globe, the ETF definitely
has a U.S. focus as roughly 45% of the fund goes to American
stocks. Beyond that though, the Asia-Pacific region dominates,
with China (13%), Indonesia (8%), and Australia (8%), rounding
out the top five with Canada (also at 8%).
In terms of capitalization levels, the ETF is skewed towards
the smaller side, with mid caps taking up roughly half the
portfolio, followed by large caps (27%), and then the rest in
small/micro cap securities. For individual stocks, no single
company makes up more than 8% of the portfolio, while the
in-focus Peabody Energy comes in fourth place at roughly 6.7% of
The performance of the ETF has been less than stellar
(to put it mildly) to start 2013, as the ETF has lost
nearly 30% since the beginning of the year. However, the ETF
added about 2.3% in the wake of the BTU report, and the fund has
moved higher by about 5.4% in the past ten days.
Coal investing has been pretty terrible for much of 2013 as
investors focused on clean energy and natural gas instead. This
has left coal as both an unloved power source, and an overlooked
3 Unknown ETFs that Continue to Crush SPY
Yet with BTU's solid report, one could argue that coal has
finally bottomed out. This may be particularly true if hot
weather continues and natural gas prices hold firm, a combination
that could further boost the fortunes of coal investing heading
into the end of the summer.
Still, great caution needs to be applied to this space,
especially with overall weakness in the commodity market. For
this reason, we are keeping our longer term Zacks ETF Rank #4 on
the fund, though we could certainly see a further bounce back in
the short term for this beaten down coal ETF.
Want the latest recommendations from Zacks Investment
Research? Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
PEABODY ENERGY (BTU): Free Stock Analysis
MKT VEC-COAL (KOL): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report