Exiting through the backdoor of the restaurant, we stepped into a cloud of smoke. Huddled together like a group of pariahs, the staff were enjoying their cigarette-length break.
Forcing a cough, my date asked how anyone could still smoke while knowing the risks.
“Old habits die hard,” I said.
Against the ropes in the early 2000s, American tobacco companies looked like they were going down for the count.
Groups like Philip Morris faced mounting regulations and lawsuits.
Ads ran on TV showing the gruesome results of a lifetime of smoking. The American populace held only contempt for these “death dealers.”
It’s a surprise to most that these giants didn’t wither and die. In fact, business is booming.
Tougher markets weeded out the weaker players. Only a handful of the strongest tobacco companies remain. And they chartered a path to success.
Even against declining sales, profits rose.
Investors toss aside hated sectors and forget they even exist. But shrewd investors can find opportunity where others see only ashes.
That’s the position we find this hated energy source today.
Coal use in America is declining.
Cheap natural gas came onto the scene thanks to the shale revolution. At the same time, the public grew wary of coal’s polluting effects.
Banks decided that coal was too dirty for them. Taking the moral high ground, many refuse to invest in major producers.
Coal is even a hot-button political topic. The right rallied behind Appalachian coal miners, while the left dismissed coal as a bygone energy source.
But outside of newsrooms and banking boardroom meetings, coal is getting its second wind.
Coal Fuels Growth
India and China, home to nearly half of the world’s population, are still heavily reliant on coal.
India uses coal for 56% of its power. The country is rapidly developing, with some estimating that its demand for electricity will more than double by 2040.
China relied on coal during its huge growth phase. The nation is now trying to wean itself off coal.
President Xi Jinping announced last November that China will adopt cleaner energy like natural gas to power its cities.
But that may prove easier said than done. The past winter saw utilities switching back to coal to keep up with energy demand from the biting cold.
Analysts are waiting to see how the nation’s natural gas supplies hold up this winter.
Even countries like Japan and Germany can’t kick coal. Fears over nuclear power are pushing them back to one of the most polluting fuels.
Investing in Coal
For the few coal producers left, the future looks promising. Steady demand and less competition will see prices climb higher.
Consider Peabody Energy Corp. (NYSE: BTU).
The American coal producer is making international deals with the European and Asian markets.
For a broader approach, the VanEck Vectors Coal ETF (NYSE: KOL) tracks a basket of major coal producers.
Internal Analyst, Banyan Hill Publishing