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Taking profits from the coal industry

Today's Financial News - Posted January 2, 2009

The coal industry is not the laggard many investors would like it to be. While most stocks have barely made gains over the past few weeks, some of the industry’s best companies have soared. If you followed my advice and bought shares of James River Coal (NASDAQ:JRCC) you are sitting on hefty gains.

By Andrew Snyder, TodaysFinancialNews.com

Baltimore—(TFN): The nation’s coal producers ended a disastrous year on a high note. Even better, they have started 2009 with a bang. Smart investors are making big money.

Share prices at most coal miners have made double-digit gains over the past few weeks. Peabody (NYSE:BTU) and Massey Energy (NYSE:MEE) are getting most of the attention and making plenty of headlines, but my recent recommendation, James River Coal (NASDAQ:JRCC) is leaving them in the dust.

The chart says it all:

The average investor is having a hard time watching the economically sensitive coal industry run away from the rest of the market. After all, isn’t the energy sector supposed to slow dramatically during a recession?

It is true. Electricity demand growth is expected to halt, even go negative over the next few quarters, but the coal industry has not been blind to the current recession. It knew the commodities bubble would eventually burst.

Digging for profits

That is why most producers have been busy signing all the contracts they could. Thanks to forward-looking leaders, 85% of coal that is to be produced in 2009 is locked into contracts that have it priced higher than the prices we saw in 2008.

So while the rest of the equities market is reeling from the pain of slowed growth, the coal industry continues to expand its profit potential.

Thanks to these forward-looking contracts, most coal companies created a buffer to the current recession.  That means share holders smart enough to buy shares while everybody was fleeing the industry are sitting on hefty profits.

If you followed my advice and bought shares of James River in October, you should be sitting on profits of close to 20%. I say take advantage of the action and lock in those gains.

It is tempting to hang onto the shares and wait for bigger gains. But in this volatile market, it is important to take profits when we can. We will re-visit the investment on the next big dip.

For now, realize the coal industry is going to be one of the strongest performers of2009.


Next Article: Who is next for the easy money?

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Posted by Andrew Snyder · Filed Under Gold and Resources 

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