We're poised to make great profits as energy investors over the next two years. There's been nothing but positive signs for oil and gas stocks from the incoming Trump administration, both from comments made during the campaign and from the appointments he's made to his Cabinet.
Rex Tillerson, the CEO of Exxon Mobil (XOM) and Donald Trump's choice for secretary of state, only puts icing on a cake of a prospective energy policy that is clearly going to work to the benefit of oil production both here and in Russia, while being exceedingly more careful and sensitive to global price. I don't believe that "unleashing U.S. energy resources," as Trump has often mentioned, will be done without the discipline necessary to deliver a huge profit margin as well -- in a new Trump world, I can see Russia and the U.S. coming together in a global energy alliance -- and Tillerson is the perfect guy to make sure this arrangement is nothing if not very, very profitable.
Today, however, I want to talk about something besides oil and gas. Instead, I want to talk about an opportunity I have avoided for literally years, but now think might have some legs in the midterm as Trump assumes power: coal.
In the Obama years, it was fairly simple to predict the move away from coal resources and shield ourselves from coal stocks. The shift from coal toward natural gas and renewables was a very natural progression of energy sources -- remember, we have already evolved through a wood-fired energy economy to coal and into fossil fuels and have been seeing the natural rise of renewables to replace them all.
But the aggressive Obama rollout of regulations, principally on electric power plants, has certainly accelerated the turnaround of the U.S. electric grid away from coal and toward natural gas and renewable sources -- even if the total percentage of solar and geothermal energy in the current grid remains small.
But Trump has been clear of his loyalty to those voters who got him elected, specifically the industrial workers -- including coal miners -- in the Rust Belt states of Pennsylvania and West Virginia.
But what can he do to repay them and restart coal? First and foremost, he has the power to roll back much of the EPA regulatory structure that turned the power industry away from coal. His pick for EPA commissioner is Scott Pruitt, the attorney general from oil-rich Oklahoma. Like the president-elect, he is a climate-change "dissenter" and one can easily see many of the existing Obama guidelines on carbon emissions and obligations toward renewable generation abandoned. This, by itself, may not be enough to move the power industry back toward coal in any meaningful way; the Trump administration might only have a four-year life, with a renewed commitment to curbing emissions to follow.
But a second enticement to return to coal might be guidelines for new or upgraded coal plants that the new EPA commissioner might deliver -- not just regulations on those already in service. This quote is from a former EPA administrator under President George W. Bush who was considered for the top job before Pruitt was selected: "I think the advice they will get is that they really need to do a carbon standard for new coal-fired power plants," said Jeff Holmstead. "But they can do one that's not unreasonable."
Translation: New or upgraded coal plants will be given much greater emissions leeway and husbanded into the grid under a Trump EPA.
That could really get coal going again, at least for the next several years.
Two coal companies, both recently out of bankruptcy, strike me as the way to play this coming trend: Arch Coal (ARCH) and Peabody Energy (BTUUQ) . These are restructured companies that, normally, would be so outside my radar as to be unviewable. But in these very strange and unique times, we still have to see the trends coming, no matter how weird, and take advantage of them.
The trend of history is against them, but the midterm momentum will start to build again for coal -- and these are two stocks that will benefit from that. Yes, I am going to start buying coal stocks again, which I haven't done at least since 2005. You should look at them seriously, too.
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