Greed is still better than 'green'

By Jon Markman

Now that we've got all the pious Earth Day documentaries, photo essays and public service announcements out of the way, it's time to get back to business.

And that means we need to talk about investing for the real world as it exists today, not as it might on some far-off date when all our modern conveniences are powered by love beads, sunshine and sugar beets rather than good old-fashioned oil, gas and coal.

My colleague Jim "Moonbeam" Jubak provided a fluffy-clouds-and-rainbows portfolio for environmental dreamers last week, which was great if you have a "Gore 2008" bumper sticker on your Prius. For everyone else, I'd like to return attention to the companies that provide the motive force behind the electronics, vehicles and water heaters that have lifted us above the darkness and despair of the Middle Ages -- and I don't just mean the '70s.

Call it a portfolio for Unearth Day.

A coal fix for electricity addicts

Right now, right here, just for starters, you just have to have some coal mining companies in your portfolio. Yeah, OK: Coal is stripped out of gorgeous Appalachian and Rocky mountains, it's filthy to handle, and its emissions blacken the sky. But look on the bright side: Nature, not man, made it a nearly perfect and highly economic fuel for power plants -- and it is plentiful in the United States. Natural gas is slowly gaining on coal as fuel for electricity utilities, but it's way behind and will remain so for decades.

If this disturbs you, perhaps you should try living without your espresso machine, Pilates DVDs or broadband connection for a few weeks. U.S. electricity demand is rising at the rate of 1.5% annually due to all our new plasma-screen TVs, corporate and personal Internet use, iPod chargers and cell-phone towers. Think of all the incremental extra demands you put on the power grid today versus 15 years ago, including your three home computers that are on day and night, and you realize the extent to which we have become electricity addicts.

Electricity doesn't come from the sky; it comes from coal, plain and simple, although hydroelectric dams, natural gas and nuclear fission lend a hand. Coal prices weakened last year as rising production and ample utility stockpiles provided too much supply in the market. But the supply-demand balance is improving for coal miners this year due to production declines of as much as 3.5%, according to federal regulators. The reason: Central Appalachia coal miners have closed a lot of high-cost mines while Wyoming-area coal miners slowed production to better meet railroads' capacity to move the rocks south to distribution networks. All the while, a worldwide boost in natural gas prices has made that cleaner fuel less economical.

So which coal miners should you buy? That's pretty easy to answer, as there are far fewer miners than there are oil and gas drillers. The low-cost leader in the United States is Peabody Energy (BTU, news, msgs), and it's also considered the best managed, with highly profitable operations in Australia that feed China directly. But smaller miners Westmoreland Coal (WLB, news, msgs), Arch Coal (ACI, news, msgs) and Foundation Coal (FCL, news, msgs) are also good choices, as is the Canadian trust Fording (FDG, news, msgs), which pays a juicy 9% dividend to boot. More diversified miners with major coal subsidiaries that I can strongly recommend are BHP Billiton (BHP, news, msgs) of Australia and Teck Cominco (TCK, news, msgs) of Canada. Pick one or two from the first group and one overseas, and you're covered.

Grab a shovel

Coal can't be dug out of the earth without a lot of big equipment, so in our Unearth Day portfolio we just have to have some major earthmoving machinery makers. The two most important U.S. supershovel makers are Joy Global (JOYG, news, msgs), which sports a $5 billion market capitalization, and Bucyrus International (BUCY, news, msgs), which is a fifth the size at $1 billion. They are both cheap, face expanding market opportunities overseas in China and Russia -- where equipment is hopelessly outdated and in need of updating -- and are run by experienced managers in Milwaukee. Buy either with a goal of at least a 20% profit over the next year.

For a foreign accent on the same idea, consider Finnish mining-equipment maker Metso Oyj (MX, news, msgs), which I first recommended a year ago in this column, "China's reality is both boom and gloom." It's up 50% since, but with earnings growing and global growth prospect intact, its valuation supports at least another 50% move higher.

 1 | 2 | next >