Acquisition fever burns hot–here are three stocks to profit from the frenzy

Acquisition frenzy is upon us. August is on a path to be the second best August ever for acquisitions. Making a profit from one of these deals ought to be as easy as shooting fish in a barrel.

Except it’s not.

Many of the barrels as completely void of deals: fire away as you like you’re not going to hit anything. Others are full of nothing but minnows: Nothing you hit is going to be worth the ammo.

There is a way to improve the odds, though.

If you understand the reasons behind the surge in acquisitions, you can figure out where the big fish might be hiding. (For more on the acquisitions boom see my post http://jubakpicks.com/2010/08/24/thinking-long-term-right-now-is-hard-which-is-why-its-worth-doing/ )

That can help you eliminate some barrels and prioritize others.

Using that process, I’ve come up with three acquisition candidates that I think are worth putting in your gun sights. Read more

Peabody’s the name if Asian coal is the game

(I am on vacation until August 24. During that time Jubak Picks will operate on a reduced schedule of one or two posts a day.)

If China is the story in coal—and I think it is since China is now the No. 1 energy consumer and uses about three times as much coal as the United States—then Peabody Energy (BTU) is the story among coal companies.

In reporting its second quarter earnings the company said that it expects global net coal imports to grow by 30% in 2010.

China is the driver of demand.

But the country isn’t alone. India’s coal imports are up 22% in 2010 and Peabody estimates that imports will finish the year up 20% from the total for 2009.

In January Peabody forecast that it would sell 240 million to 260 million tons of coal in 2010, compared to 244 million tons in 2009, because of increased demand in Asia.

Peabody, the largest U.S. coal producer, has been gradually adding assets in Australia in an effort to move closer to the fastest growing end markets. Peabody projects that it will sell 27 million to 29 million tons of Australian coal in 2010. That’s up from an earlier forecast of 26 million to 28 million tons.

Someday coal may hit the wall because the world’s countries have decided to implement an enforceable global climate change program to reduce carbon emissions, but Peabody hasn’t seen any effects from the half-hearted (or less) efforts so far. Coal is actually gaining market share at utilities and consumption in power generation is up 6% through the first half of 2010 from the same period of 2009. Thanks to the increased demand stock piles look like they’ll be down to normal levels by the end of 2010. That should help prices that Peabody already calls good.

In its July 20 second quarter earnings report the company beat Wall Street earnings estimates by 6 cents a share, reporting 69 cents for the quarter, and missed on revenues by $20 million, reporting $1.66 billion. Peabody confirmed earnings guidance for all of 2010 of $2.60 to $3.15 a share.

Full disclosure: I don’t own shares of any company mentioned in this post in my personal portfolio.

Now it’s coal that’s on fire–because of the snow

Bad idea to run out of coal during a cold spell. But that’s exactly what’s happened to China’s utilities. Near panic spot buying has sent the price of thermal coal above $100 a metric ton for the first time in a year.

China imported about 50 million metric tons of coal in 2009. That huge shift from China’s traditional role as a coal exporter came as Beijing worked hard to shut illegal coal mines concentrated in Shanxi. When a heavy snowfall in northern China disrupted other mining operations and rail road service, utilities found themselves short of coal to burn.

Supply shortages are likely to continue until warm weather reduces the need for coal and resolves the railroad bottlenecks. Australian miners would love to meet the surge in demand from China sooner but infrastructure in that country isn’t up to the job. In Newcastle, Australia’s chief port for the export of thermal coal, the line of ships waiting to load coal is 60 ships long, a two-year high.

China’s need for coal and the surge in spot prices couldn’t come at a better time—if you’re a coal producer about to negotiate your annual contract with Japanese and other Asian utilities for the fiscal year that starts in April 2010.

Spot prices are well below their $210 a metric ton all-time high of 2008, but the recent move above $100 a ton has convinced analysts to forecast a 20% to 25% increase in the annual contract price to $85 to $90 a ton from the $71 a ton price negotiated in the spring of 2009.

What stocks to look at? Read more