Bloomberg reports that “China’s industrial-company profits swelled 42.1 percent in the first five months from a year earlier.” The article cites a 43.1% increase in coal companies’ profits year-over-year. While U.S. coal stocks have been volatile the past couple of weeks, China’s strong demand for coal continues. Coal producers with mines in Australia should continue to do very well. The best coal names with mines in Australia include BHP Billiton (BHP) and Peabody Energy (BTU). The driver of coal demand isn’t U.S. utilities anymore but the fact that China has become a net exporter of coal to a net importer of coal, and this has been going on all of 2007. Read the rest of this entry »

Caterpillar (CAT), along with other machinery stocks, was down on a strong tape today after the Commerce Department reported a larger-than-expected drop in durable goods orders. However, a news release by Hitachi Construction Machinery Co. today suggests the mining and construction machinery business is very strong. Hitachi Construction reached earnings target early. Bloomberg reports, “Hitachi Construction Machinery Co., the world’s biggest maker of large excavators, said earnings are rising faster than forecast as construction and mining booms in China, Russia and India drive demand.” Read the rest of this entry »

Here’s my comments on Alan Brochstein’s “Land-Based Drillers Extremely Mispriced” article on SeekingAlpha. Thought I’d post this until I write an article about the drillers…

“Great analysis Alan. I’d like to point out, however, that just as the trend is for deep water drilling in the ocean, land drilling must go much deeper as well. This might separate the haves and the have-nots where the ones with the best equipment & crew can drill deepest and those who have out-dated equipment are out of luck. Also, the turnaround in land drilling might not be as strong as your historical data shows. There might be less rigs put up because less places to drill. Unlike in the past, geological imaging has greatly improved such that drilling companies can identify wells instead of having to put up rigs to drill holes and check for oil.

Still, I’m not familiar with some of the names you suggested, so I’ll definitely check them out. Thanks for this article.”

A great way to understand the drilling business, both land and sea, is to watch “Oil, Sweat, and Rigs.” It’s a great reality/documentary series by the Discovery Channel, getting you right into the drilling action so you get a feel for what it’s like to be a roughneck.

As I suggested before, the other side of the energy-shortage trade is energy conservation. Unlike speculating on alternative energy technology, the energy conservation technology and products are well developed and, when implemented, will immediately reduce energy consumption. The U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy (EERE) estimates that buildings are responsible for 70% of electricity demand and 50% of natural gas demand. Likewise, the EERE estimates that heating and cooling account for 56% of energy use in a typical home in the U.S. Four large-cap stocks with varying degrees of exposure to the energy efficiency business are American Standard (ASD), Johnson Controls (JCI), Honeywell (HON), and United Technologies (UTX). Read the rest of this entry »