Is Buffett eyeing coal?
His recent trip to a Wyoming mine has investors wondering whether the industry will receive his blessing.
By Don Dion, TheStreet
A long-term proponent for the global economic recovery over the past year, Warren Buffett has made a number of interesting decisions that have helped to position his portfolio for strength over the long term. One avenue some observers feel the famous investor has taken a particularly strong liking to is the coal industry.
At the close of 2009 and the start of 2010, Buffett stole headlines when he announced plans to purchase the remaining shares of Burlington Northern Santa Fe Railroad. The deal, valued at $34 billion, has earned the title as Berkshire Hathaway's (BRK.A) largest acquisition.
Buffett has claimed that the purchase is an all-in bet on the strength of the United States that will benefit Berkshire Hathaway for 100 years or more. Many analysts, market commentators and Buffett fans, however, also view the move as a vote of confidence that coal will remain a staple in global energy for the foreseeable future.
Burlington Northern, a major coal transporter, will likely benefit as the U.S. recovers and emerging market giants such as China continue to feverishly seek out resources to fuel rapidly expanding economies.
Aside from the railroad purchase, Buffett has offered other hints that he may have his sights set on the coal industry. In the latter half of November, the billionaire investor was spotted in Wyoming with his friend and fellow billionaire Microsoft (MSFT) founder Bill Gates. During the short trip, the two visited Arch Coal's (ACI) Black Thunder Mine, one of the largest coal operations in the United States. (Microsoft owns and publishes MSN Money.)
Buffett's trip received only minor coverage from the media, and nothing official has surfaced from him, aside from the fact that he found the trip "fascinating." However, it has not stopped speculators from wondering whether the journey is a sign that the coal industry may be due for a Buffett blessing in the very near future.
The coal industry will certainly see a boost if Buffett announces a personal interest in the fuel source. However, even in the absence of any action taken by the billionaire, investors may still want to consider gaining exposure to coal as a way to track the ongoing economic recovery.
One of the strongest ways to access this industry is through the Market Vectors Coal ETF (KOL). The fund has benefited recently from improving sentiment regarding the global economy and, as a result, moved up in our long-term-momentum rankings.
Designed as a way to access the various facets of the coal business, KOL's index includes of a collection of the largest and most liquid companies responsible for both the mining and transportation of coal, as well as equipment providers. The United States represents the largest geographic slice of the fund, but KOL also boasts exposure to other nations, including China, Indonesia, and Australia.
KOL's top five holdings are Peabody Energy (BTU), Consol Energy (CNX), Joy Global (JOYG), China Shenhua Energy, and China Coal Energy, which together account for 37% of the fund's total portfolio. Arch Coal is another major KOL constituent and accounts for close to 5% of its portfolio.
KOL is one item investors may want to consider adding to their wish lists this holiday season.
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These companies won't soar like other plays in the sector, but they make for great income sources.
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