A synopsis of today’s Analyst Interview is presented below. The full article can be read at http://at.zacks.com/?id=2678.
Which would you consider your top two or three Buy recommendations, going forward?
In the coal space, my top three picks would be Peabody Coal (NYSE: BTU), Consol Energy (NYSE: CNX) and Arch Coal (NYSE: ACI). These companies have large presences in the major operating basins in the U.S. and exposure to seaborne markets as well.
Peabody in particular should benefit from the commodity boom as they have the largest international presence of the group. The company acquired assets in Australia in 2006 and has since more than double production. As prices for seaborne coal from Australia to the Pacific Rim have increased five fold over 2007 levels, BTU should see significant increases in operating margins and cash flow. This is a trend that should be expected from these three companies in the next several years.
How would you advise investors play commodity-driven stocks over the near- to medium-term?
From an investment standpoint, now is still a great time to get in. As the companies mentioned above should grow earnings by at least 100% in 2009 compared to 2008, there is still significant opportunity and upside remaining. As usual, the market has a more conservative price deck for this company’s realized average price per ton going forward. This understates revenues and earnings. Currently, I would advise investors who got in around 2006 or early 2007 to take some profits as stock prices have gone up significantly from recent levels, but still maintain a position as strength remains.
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