I’ve found an interesting company that I believe is undervalued with good short-term growth prospects.
Fording Canadian Coal Trust (NYSE: FDG) operates as an open-ended mutual fund in Canada. The trust owns a 60% interest in Elk Valley Coal Partnership, which produces and sells seaborne metallurgical coal. The partnership’s primary product is hard coking coal, which is used primarily for making coke in integrated steel mills.
Elk Valley Coal owns interests in six open-pit mines that consist of Fording River, Coal Mountain, Line Creek, Elkview, and Greenhills mines that are located in the Elk Valley region of southeast British Columbia; and Cardinal River mine located in west central Alberta. Fording Canadian Coal Trust also owns 100% interest in NYCO, which engages in wollastonite mining operations in New York State and Mexico, and Tripoli mining operations in Missouri.
Why am I so interested in this company?
* This company which has a $5.3 billion market cap pays a juicy 13% dividend.
* The pretax earnings yield is 12% and the pretax return on capital is greater than 100%. These are the two basic criteria for investing in undervalued companies found in The Little Book That Beats The Market. (I highly recommend purchasing the book.)
* I am bullish on steel demand even in light of a softening housing market. Emerging markets like China and India will keep steel prices high in the short-term. The hard coking coal Fording Canadian Coal produces is used in steel production.
I will likely get in at the $34-$35 range.
FDG 1-yr chart: