best coal stocks

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Now Is The Time to Buy These Oil Refiners and Coal Stocks

Without fail, every year there are January surprises.

They occur when investors receive a pop in selected stocks because of the way fund managers readjust their holdings to dress up their fourth quarter performance.

These improvements don't usually last very long.

In fact, most investors will see the affected stocks decline back to normal levels by mid- to late-January.

But for a few weeks, investors can earn a nice little return as the calendar begins the New Year. This hedge-fund effect will be of special interest to energy investors in 2013.

That's in stark contrast to last year when oil-related stocks were moving in one direction while natural gas stocks were moving in another. What's more, service companies were beginning to come off of their highs at this point in 2011, and King Coal was about to fall off a cliff of its own.

This time around, we have a fiscal cliff soap opera in the U.S., continuing credit concerns in Europe (although with a parallel rise in market optimism emerging on the continent), rising uncertainty again in the Middle East, and a simmering dispute between Japan and China.

In short, even ignoring the Mayans and their approaching December 21 deadline, there is no lack of concern in the market these days.

Still, there will be several beneficiaries in the energy sector as hedge fund managers make their moves over the next few weeks. This is likely to happen across several categories of companies.

In this case, investors would be wise emphasize two segments of the energy market that are currently on the rise: oil refineries and coal stocks.

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How the Election Just Killed Investing in Coal Stocks

In the days following the re-election of President Obama, one particular stock sector seemed to suffer more than most: coal stocks.

The Market Vectors Coal ETF (NYSEARCA: KOL) was down 5% the day after the election and individual coal company stocks were hammered even more. The largest U.S. coal producer, Peabody Energy (NYSE: BTU), dropped by 9% while the second biggest U.S. producer of coal, Alpha Natural Resources (NYSE: ANR) fell by 12%.

The reason behind the declines is the perception in the market that President Obama's re-election will mean further onerous regulation for the beleaguered U.S. coal industry.

Lucas Pipes, an analyst at Brean Capital Carret & Co., told Bloomberg News, "The coal industry has seen increased regulatory oversight from the EPA on a number of issues under Obama's first term, such as stricter permitting requirements in Appalachia and new regulations for emission reductions at utilities."

Earlier this year, for instance, the EPA issued its Mercury and Air Toxics Standards Rule, which is set to go into effect Jan. 1, 2015. It sets strict emissions requirements on utilities.

According to a study from the consultancy Brattle Group, compliance with the rule would cost between $126 billion and $144 billion to retro-fit older coal-fired power plants. Brattle estimates this will lead to a shutdown by utilities of between 59 and 77 gigawatts of coal-fired electricity over the next five years.

This means that between 18.6% and 24.3% of U.S. power will no longer be generated by coal.

Basically, EPA regulations have made coal more expensive to burn. This will reduce coal demand even further as utilities switch to cheaper, cleaner-burning natural gas. Already the share of U.S. electricity supply coming from coal plants has fallen to its lowest level in almost 40 years.

At times this year, coal has lost its position as the country's biggest source of power, falling behind natural gas. Not surprising then that production from the U.S. coal industry has fallen 8% from 2008 to only 266 million tons in the first quarter of 2012.

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Coal Stocks Are Historically Cheap - Here's What You Need to Know (WLT, BTU, ARLP)

The U.S. coal industry is facing a perfect storm and has taken a beating recently, bringing coal stocks down with it.

According to the Energy Information Administration (EIA), electricity generated by coal was down more than 20% in 2011. So it's no surprise that U.S. coal producers have been hit, and their valuations stand at 15-year lows.

With a torrent of factors dragging the industry down - from a bad reputation to dirt-cheap alternatives -can coal make a comeback?

Let's look at what's the matter with coal, why it doesn't matter in the big picture, and how you can make some money on the rebound.

What's the Matter with Coal Stocks?

There are three big reasons why coal has been beaten down:

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Don't Miss Your Chance to Profit from the Best Coal Stocks

U.S. and European debt concerns have triggered some dismal market performances - but there is still one energy sector that's moving up.

And that's coal.

The Dow Jones U.S. Coal Index, which tracks 69 energy and coal-related companies, has climbed 60% in the past year and 13% in the past month.

So what's the key motivating factor moving the world's best coal stocks higher?

Simply put, it's a combination of shrinking supplies and rising demand.

Indeed, Coal prices are up more than 20% in the past year and many experts say increasing consumption from emerging economies like China - the world's biggest coal consumer - and India will push prices even higher.

China's rapid growth has been the main driver behind an average 3.8% annual increase in global coal demand since 2000. In fact, the country accounted for about half of the world's coal consumption in 2009. And a China Energy Research Institute report recently estimated that country's economic growth, urbanization, and rising middle class would increase coal demand by 700 million tons to 1 billion tons by 2020.

India's coal imports are expected to double to 100 million tons by 2012. And Japan also will boost demand attempts to rebound from the tragic March 11 earthquake and tsunami.

Growing demand isn't the only reason to believe prices will soar, either. Because as worldwide demand surges, global coal supplies are rapidly falling.

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