This ‘hated’ commodity should get a boost from Trump’s latest plan
From Nick Rokke, Analyst, Palm Beach Daily:
Last year, I told you happy days were here again for coal country. And they’re about to get happier…
Regular readers may remember my Rust Belt Tour in the summer of 2017. During the tour, I traveled across the American Heartland to see how President Trump’s “America First” agenda was affecting the economy.
I reported mostly good times. Especially in coal country…
One of my favorite stops was in Pennsylvania. While there, I attended the grand opening of Corsa Coal’s new mine in Somerset… and toured the facility with CEO George Dethlefsen.
George told me, “Coal mining is about to get a lot more fun.”
And the market agreed. Since my visit, the VanEck Vectors Coal ETF (KOL) is up 34%. That’s 2.5 times more than the S&P 500.
Well, times could get even better. Here’s why…
In Tuesday’s Daily, I told you that the Trump administration planned to unveil its $1 trillion infrastructure spending plan later this month. That’s bullish news for the U.S. steel industry. And what’s good for steel is good for coal.
No matter which infrastructure projects get approved and funded, expect coal to piggyback on the steel industry.
America Needs an Infrastructure Upgrade
As I wrote yesterday, our country’s infrastructure is crumbling…
Every four years, the American Society of Engineers (ASCE) issues a report on the condition of U.S. infrastructure. The report assigns a letter grade based on the physical condition and improvements needed.
In 2017, the ASCE gave U.S. infrastructure a D+. It also said the U.S. government needs to spend over $2 trillion over the next decade just to fix our aging roads and bridges.
It’s just not bridges, either… We need trillions more to update other infrastructure, like electrical grids, dams, airports, and railroads.
That’s why President Trump wants Congress to send him a $1 trillion spending bill.
I told you that steel is a great way to play this policy. Nearly every infrastructure project uses steel in some capacity.
Coal is another great play. That’s because to produce steel, you need coal.
In particular, you need the kind of coal that burns hot enough to melt the iron ore that makes steel. We call this type of coal metallurgical or “met” coal.
With steel demand already on the rise due to a growing economy, I expect met coal to take off, too.
The last time coal companies had a major bull run was 2000–2008. The Stowe Global Coal Index — which tracks global coal companies — soared 1,600%.
We could see a similar rise this time…
No commodity is more hated and more overlooked than coal.
Many investors think cleaner energy sources will kill off the coal industry. And the price of coal has been so low for so long that miners stopped looking for new mines. It’s the perfect contrarian play.
KOL is the easiest way to get exposure to coal companies. It holds coal mines from all over the world… as well as the companies that produce equipment to mine coal.
If you want to get a little more aggressive, you could consider met coal companies.
The three that I follow are Warrior Met Coal, Ramaco Resources, and Corsa Coal. As you can see in the chart below, they are all up over 35% since mid-November.
Now, these are all young, speculative companies. Don’t bet the mortgage on any one of them.
But I do believe coal’s just starting its run. If you want to make a smart speculation, any of these companies would be worth a look.
Nick Rokke, CFA
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