Transports of all stripes are inextricably linked to energy prices. In fact, transport-related stocks have been among the most successful in The Energy Strategist coverage universe during the past year.
Earnings season for the energy patch is now in full swing, and over the past two weeks we’ve heard results from most of the big-name players across all segments of the business. Overall, earnings results have been solid and growth prospects remain attractive; the energy patch continues to offer the most visible growth of any major market sector. But delving a bit more deeply into the reports and conference calls can be enlightening.
Investment themes for 2006.
After the recent mining accident which has been front page news, all investors must consider the implications of Sago on stocks in the coal mining industry. It’s been a long time since the industry was so firmly ensconced on the front pages and safety considerations play an enormous role in profitability. And coal mining isn’t the only segment of the energy business that’s publicly seen as dangerous. In this issue, we’ll also examine safety considerations for the nuclear power businesses and the implications for investors.
Coal miners can be very profitable if you are selective in your investments. Some are facing increased operational costs as the level of complexity rises with their aging mines and their skilled employees begin retiring. However, those operations that are able to utilize strip-mining techniques, especially in the Powder River Basin (PRB), are relatively low cost and profitable. Also, having to transport the coal from the PRB creates profitable plays in the railroads.
With natural gas prices hovering at record highs and oil back above $60 a barrel, the media isn’t giving coal the time of day. But when it comes to electrical power, coal remains king.
Sometimes the best plays on the energy sector lie well outside what most would consider energy stocks. Two perfect examples of this over the past few months are the railroads and the airlines.
Contrary to popular belief, coal is not a dead fuel. When it comes to electricity generation coal is king, and will remain the globe’s preeminent source of electric power for at least the next 30 years.
