An ETF to track hot-running coal

SHIRLEY WON
June 25, 2008 at 7:15 PM EDT

WHAT ARE WE LOOKING FOR?

Hot coal stocks.

The sector is poised to benefit from a rising demand for coal from Asian steel makers and any supply hiccups from producing countries such as Australia, China and South Africa. Supply problems have sent prices for coking and thermal coal soaring this year.

UBS Securities analyst Shneur Gershuni, who covers U.S. stocks, recently revised his 2009 and 2010 forecasts for hard coking coal upward to $300 (U.S.) and $275 a tonne from $200 and $175. He suggested buying coal stocks more aggressively on a pullback.

An easy way to play the global coal story recently has been through the five-month old Van Eck Market Vectors Coal exchange-traded fund, which tracks 39 companies in the Stowe Global Coal Index.?

MORE ABOUT THE ETF

The ETF, which trades under the symbol KOL on the New York Stock Exchange, includes companies that get more than 50 per cent of revenue from the coal industry. Those firms range from coal miners and shippers to the makers of coal equipment and clean-coal equipment.

The ETF, up about 40 per cent since it was launched in January, closed yesterday at $57.27 (U.S.). It peaked at $60.03 on June 19.

MORE ABOUT TODAY'S SCREEN?

We used Thomson to screen for 20 of the fund's stocks with the strongest earnings growth for next fiscal year. Most in this group are U.S. firms. Keep an eye on the price-to-earnings ratio for stocks that are not too expensive.