JUNE 20, 2011, 10:15 AM ET
Goldman Sachs Likes the Prospects for Coal; Check Out Their Favorite names
Avi Salzman
Goldman Sachs analyst Andre Benjamin upgraded the entire coal sector to Attractive from Neutral on Monday, writing that he particularly likes thermal coal, which is used for heating and electricity (as opposed to met coal, which is used to make steel). Coal stocks have the potential for 35% upside, as they has trailed the S&P 500 by 13% since May 1 on concerns about growth in China and the U.S. But the outlook for thermal coal is particularly strong, Benjamin writes. High oil prices should help the stocks, as should a more favorable supply-demand balance. “We expect recent increases in thermal exports and lower production levels to persist, leading to near-normal thermal coal inventories by year’s end and forcing domestic utilities to sign baseload contracts for 2012 at prices above mid- cycle,” he writes. Met coal, however, could experience less favorable supply-demand trends. “While our view that met coal prices will remain above mid-cycle through 2013 is unchanged, we expect 2H2011 global steel data points to be seasonably weak and met coal prices to continue moderating as supply/demand loosens.”
He upgrades Patriot Coal (PCX) and Peabody Energy (BTU) to Buy from Neutral, but downgraded Walter Energy (WLT) to Neutral from Buy. He upgraded Consol Energy (CNX) to Neutral from Sell.
