8/17/2012 9:30 PM ET|
Consol Energy among 10 hot stocks
The nation's largest underground coal mining company appears on an MSN Money list of stocks to watch this week.
The Appalachian coal industry has been in a depression, although some analysts think a modest recovery may be around the corner.
Analyst Lucas Pipes at boutique investment bank Brean Murray, Carret expects some idled domestic coal production to come back online next year, with the gains limited by large stockpiles already at electric utilities.
"Overall, we believe that the tone on the domestic thermal coal side will be cautiously optimistic that the worst may have passed for the industry," Pipes wrote in a July 19 research note.
First to benefit from a recovery will be low-cost producers with strong balance sheets such as Consol Energy (CNX), Pipes added.
Coal inventories began to build during the warm winter months. The oversupply has persisted as power producers take advantage of low prices on natural gas. Domestic coal production is projected to decline by 100 million tons this year, as Consol and others are forced to idle some mines.
Consol holds 4.5 billion tons of proved and probable coal reserves, with nearly two-thirds of that situated in central and northern Appalachia. The company delivers coal to electric utilities and steel mills via its own railroad cars, tugs and barges. It also explores for and produces natural gas.
The Canonsburg, Pa., company appears on a daily ranking created using StockScouter, an MSN Money tool that identifies stocks with strong growth prospects in the near term. All stocks with Scouter ratings of 8, 9 or 10 are considered for the list, which is then shortened to exclude stocks with a trading volume below 50,000 shares a day. The remaining stocks are ranked on the basis of market capitalization, sector membership and whether they are growth or value stocks.
As bleak as the picture has been domestically, the global market for coal is bright and could be a catalyst for a recovery among U.S. exporters.
The United States is already a key exporter of coal, shipping out 38 million tons a year, mainly for power generation. And that total could rise. The International Energy Agency estimates that global coal demand will grow by 600,000 tons a day over the next five years, with most of the demand coming from China and India.
China depends on coal for about 70% of its energy needs. The world's most-populous nation is building 16 large coal-fired power plants through 2016 as part of its five-year economic plan, the IEA reports.
The U.S. coal industry is making the transition toward an export-led future as it becomes increasingly apparent that the sun is setting on coal in the United States.
The emergence of plentiful and cheaper natural gas is one nail in coal's coffin, and growing concerns about Earth's climate are also helping usher in a new energy era in the United States.
The coal industry has sought to address concerns about global warming with "clean-coal" technology. But cheap gas poses a threat to continued federal funding of coal industry efforts to capture and store carbon emissions underground, a technology seen as vital to converting coal into liquid fuels without releasing significant amounts of carbon dioxide into the atmosphere.
Further, extreme weather incidents, like the drought that has settled over much of the Midwest this summer, are putting heat on policymakers to find ways to limit emissions of carbon dioxide, a contributing factor in climate change.
Global warming projections give urgency to efforts to answer the question of who owns the emissions from burning fossil fuels. At present, no one does. But as the world moves toward a system of tracking emissions, it will become feasible to assign responsibility for atmospheric carbon dioxide -- to the company that mined the fossil fuel, to the power plant that burned it or possibly to the consumers who bought the goods and services made with electricity generated by the combustion.
Coal is already the single-largest source of electricity generation globally, according to the IEA, which bases its projection of surging demand over the next five years on the rapid increase in power generation among emerging economies.
That surge, the IEA says, "serves as a reminder of the significant challenges facing efforts to transform the global energy system to one that is sustainable, secure and low-carbon."
Of the 19 analysts who cover Consol Energy, 13 have a "strong buy" rating on the stock, one rates it a "buy," four have a "hold" recommendation and one rates the stock a "moderate sell."
|StockScouter top 10 for Aug. 10|
|Company||Sector||Dividend yield||Forward P/E||Scouter score|
|American Electric Power (AEP)||Utilities||4.4%||13.7||9|
|D.R. Horton (DHI)||Homebuilding||0.8%||21.2||9|
|Chevron (CVX)||Oil and gas||3.2%||9.1||9|
|Canadian Natural Resources (CNQ)||Oil and gas||1.3%||11.6||8|
|Consol Energy (CNX)||Coal and gas||1.6%||16.4||8|
|Valero Energy (VLO)||Oil refining||2.4%||6.7||8|
|Southwestern Energy (SWN)||Oil and gas||N/A||21.0||8|
|American Eagle Outfitters (AEO)||Apparel retailing||2.1%||14.2||10|
StockScouter beats the market
At MSN Money, we think the StockScouter rating system is about as good as it gets when you're trying to decide where to invest. StockScouter looks for stocks whose business fundamentals, price behavior, valuation and stock-ownership characteristics appear to predict a rising price in the future, based on how those factors have influenced stock prices in the past.
The system assigns each stock an expected six-month return and balances that return against the stock's expected volatility. Scouter rates stocks on a scale of 1 to 10, and ratings can change daily. Ratings and data in the chart above were current as of this article's publication date.
In addition to the daily top 10 list described above, StockScouter is used by investment research firm Verus Analytics (previously known as the quantitative business unit of Gradient Analytics) to generate a monthly benchmark portfolio of stocks that, refreshed monthly, has outperformed the market since its inception in August 2001.
An investor who began in 2001 by investing in each of the benchmark portfolio's top 10 stocks at the start of the month, selling them at the end of the month and then starting fresh with a new group of 10 stocks, would have generated returns, before trading costs and taxes, of 846% through July 31, 2012.
Writer Jon Markman, at the time a columnist for MSN Money, collaborated with company researchers on the tool. In this column, Markman suggested rolling over the top 10 stocks every six months to hold down trading costs, a strategy that might be a better fit for most investors; that would yield different results, which would vary based on your starting point.
|Performance through July 31|
|Full 50 position portfolio|
|Index||1 month||3 month||6 month||12 month||From inception||Average annual return|
|Top 10 portfolio|
|Index||1 month||3 month||6 month||12 month||From inception||Average annual return|
|Portfolio inception: August 2001|
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Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
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