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March 1, 2017 - Thanks to increased regulations during the Obama administration, many industries took a severe beating.
The financial sector felt the pinch of the post-recession Dodd-Frank act.
Obamacare strangled health insurers and sent premiums through the roof.
But few sectors fared worse under the former administration than the coal industry.
In the last five years alone, the Dow Jones Coal — which tracks coal-related stocks — has fallen 83%. The Dow Jones Industrial Average jumped 59% over the same time frame.
The tide is turning, however.
President Trump has promised a rollback on several provisions of the Clean Power Plan signed by Obama in 2015. And Trump has vowed to make coal “great again.”
As a result, coal stocks have soared.
And as senior analyst Jonathan Rodriguez points out below, there could be much more upside where that came from…
Coal Miners Rise From the Ashes
Few industries illicit emotion quite like coal.
Climate-conscious constituents around the world deride coal as terrible for the environment.
While free-market proponents claim excessive regulation has killed a once-thriving business, put thousands of Americans out of work and destroyed once-vibrant coal mining communities.
Whichever side of the argument you’re on, one fact is unquestionable.
Coal is trending big-time… and the trend is up, up, up.
In the last year, the Dow coal index has gained 93% — more than three times the gain of the Dow Jones Commodity index.
Of course, the fact that President Trump is throwing his weight behind coal miners — a major constituency during his campaign — certainly helps.
But that’s not the whole story…
For one, coal isn’t being phased out in the U.S. nearly as quickly as some might think.
According to the U.S. Energy Information Administration, coal-burning plants still account for more than a third of power generation — neck and neck with coal’s rival, natural gas.
Coal is also crucial to the steel industry. It’s used to fuel the blast furnaces where iron is melted into steel.
And demand from steelmaking giant China — the world’s largest consumer of coal — remains strong, despite a reduction in overall global consumption.
New caps on domestic coal production led to a 25% rise of coal imports in 2016, according to China’s General Administration of Customs.
So in other words, coal demand in the short-to-medium term isn’t going down much anytime soon.
Here’s how you can trade the upside momentum.
Burning up the Chart
Natural Resource Partners LP (NYSE:NRP) is a small-cap resource company based in Houston, Texas, with interests in coal, oil and gas and minerals.
The company holds an impressive portfolio of properties — spanning 10 million acres across 31 states.
And as of Dec. 31, 2015, NRP derived 51% of its revenue from coal mining royalties.
Unlike some of NRP’s peers, though, the company insulated itself from the full brunt of Obama-era regulations on its coal business.
In the face of falling coal prices, the company wisely acquired construction materials company VantaCore Partners LP in 2014.
With the VantaCore purchase, NRP not only covered its revenue shortfalls — but also added significant top-line growth.
In 2015, year-over-year royalty revenue jumped 22%.
The boost in revenue and hopes of a friendlier regulatory environment for coal have translated into big-time results for shareholders.
Over the last yevar, shares have exploded — posting an eye-popping gain of 423%.
The company trades at 8.3 times forward earnings — less than half the earnings multiple of the S&P 500.
And despite the stock’s huge rise, shares still offer a dividend yield of 4.4%.
In fact, shares just broke through stiff resistance around $39 to a fresh 52-week high.
Bottom line: President Trump’s soft stance on the coal business could send the industry soaring over the next four years. And NRP could be your best way to trade this budding bull market while the iron is hot. |
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