Tuesday, March 16, 2010

CONSOL Energy Makes Big Bet on Natural Gas

The market didn't like it and send the stock down 10% but this might be a good entry point according to this article.

Both coal and natural gas have seen some noteworthy price swings over the past couple of years, including a difficult period in which utilities switched from burning coal to temporarily cheaper natural gas. Over the long run, CONSOL's dual exposure will smooth out the peaks and valleys of such price volatility. Toss in CONSOL's recent success in exporting coking coal directly to China, and it's easy to see why CONSOL retains this Fool's uninterrupted nod as the top name for coal in the Appalachian region.

I agree with the idea of being a leader in both coal and natural gas will set them up for greater profits going forward. If both commodities start to head higher we might see that -10% made back up and maybe much more. This is especially true when interest rates go up and the dollar weakens. Having a diversified energy portfolio has never been a bad deal when one commodity or the other is down. If the dollar weakens then you might see both go up instead.

Another stock I have been looking at in the coal space is Arch Coal (ACI) basically for the pick up in demand for coking coal for steel mills. I think steel demand may start to go higher as the Red Chinese start to ramp up their economy again. Iron ore miners have already guided higher due to this demand and coking coal might not be far behind.

Spot market prices for iron ore have soared above $130 per tonne, spurred by strong demand from Chinese steelmakers and global strength in commodities markets.

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