(Idea) Our #1 Metallurgical Coal Stock Pick - Warrior Met Coal
By: Jon Costello
Metallurgical coal represents one of the most attractive long-term investment opportunities in the energy sector. I recently discussed the commodity’s long-term outlook here.
The constructive macro backdrop begs the question of how best to profit from higher coal prices, which I believe will prevail over the coming years.
The opportunities in the stock market have arisen in large part due to the negative public opinion toward coal, which has kept investors from buying coal names. This opinion is misguided.
Thermal coal will continue to be used to generate electricity. It will play a vital role in meeting the world’s growing electricity demand. Having coal as part of the energy mix increases a grid’s reliability and resiliency while reducing its cost in a manner that other energy sources cannot.
For met coal, there is no replacement for steel as the main structural component in buildings, infrastructure, automobiles, and other goods that make civilization possible.
To be sure, the pollution from burning coal is a problem that needs to be addressed. But calls for phasing out the industry entirely are misguided. Moreover, in light of the central role coal plays in sustaining modern life, its negatives should be regarded as manageable tradeoffs against the commodity’s virtues, rather than serving as a pretext for eliminating the commodity’s use entirely.
Investors who are comfortable with the prospect of coal remaining a viable energy source and input into steelmaking for decades to come can take advantage of the depressed valuations of coal stocks. The opportunity arises from three key factors: first, the discounted purchase price that an investor can obtain; second, the attractive business model possessed by certain met coal producers; and third, the long-term compounding nature of returns offered by the best-positioned met coal producers.
If I had to make one investment before being whisked away to a remote island with no internet access, it would be Warrior Met Coal (HCC). The risk/reward proposition it offers represents one of the best long-term investments in the energy space.