Why I'd hold this coal-mining ASX share for 4 years: expert

Ask A Fund Manager: Datt Capital's Emanuel Datt recalls the expensive lesson that taught him the importance of dollar-cost averaging.

| More on:
a coal miner in hard hat with a light on it kisses a large lump of coal that he is holding in his hand.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Ask A Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Datt Capital principal Emanuel Datt explains how a coal miner could possibly be a great investment and why it's important to practise dollar-cost averaging.

The ASX share for a comfortable night's sleep

The Motley Fool: If the market closed tomorrow for 4 years, which stock would you want to hold?

Emanuel Datt: It was quite funny because when I read this question, I thought of SelfWealth Ltd (ASX: SWF). 

But then I realised, "Oh, well, SelfWealth's whole business is about having a tradable market. Oh, that wouldn't work."

So I think that the stock that we would want to hold would be Whitehaven Coal Ltd (ASX: WHC). Ultimately, that's driven by the reality that the transition to cleaner energy sources will require coal, and lots of it, effectively. 

I think that, ultimately, that's driven by the green lobby having labelled nuclear power as dangerous but, conversely, this strengthens the position of fossil fuels. It basically extends what we think will be the time horizon for fossil fuels to be used. 

Longer term, the coal market is positively positioned because new mines are generally quite difficult to permit and the output from existing mines is falling, and this is despite relatively stable demand. That's projected over the next 20 or so years.

Accordingly, we think that there's going to be enduring supply-demand mismatch, at least over the next 10 to 20 years [which will] lead to higher prices down the line. 

Whitehaven's coal is known for its positive clean qualities, I guess. Its customers are primarily ex-Chinese east Asians — like the Japanese and Koreans. It also has already permitted and advanced expansion opportunities while also, we feel, that it's materially undervalued on projected DCF [discounted cash flow] basis. 

If strong coal prices persist, then we feel that Whitehaven will be in a very strong position to potentially cash fund their expansion projects while also making generous capital returns back to shareholders. 

The way we see it… Whitehaven is just a pure cash machine, so we'd feel quite comfortable holding this for the long term.

MF: Is it one of your core holdings?

ED: Yeah. Well, we're actually sort of building into it at the moment because we do have a position, but not a big enough position at the moment.

Looking back

MF: Is there a move that you regret from the past? For example, a missed opportunity or buying a stock at the wrong timing or price.

ED: Most recently, it's not buying Whitehaven in May in the low $1 range.

MF: Yes, the price has ramped up since mid-May, hasn't it?

ED: Yeah, it's gone up about 3 times.

But we were [still] thinking about buying because we know the history of the company quite well, and we noticed that a particular major shareholder was reducing their stake. Ultimately, we were too fixated on an entry point around $1, and I think the low was maybe $1.10 or $1.20 or something like that. 

So, being too fixated, we just missed out because it shot up to $2 very quickly and today it's trading at over $3. Ultimately, we like the company so we're having to put up our hard earned [at] over $3.

MF: It goes to show you, even the professionals are susceptible to anchoring.

ED: Absolutely, yeah. I think it's really just a prime example of just being overconfident in the information that we had at hand. 

Ultimately, ideally, we should've staggered our entry given how confident we were in the company's prospects. But… [we had] the bias of hoping that'll pull back to make an entry point at some stage. 

It's really a great lesson to practise dollar-cost averaging.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Ask a Fund Manager

A businessman wearing a dark suit points at the camera in a gesture to represent Soul Patts encouraging AGL to give more thought to the Brookfield Consortium's takeover bid
Investing Strategies

This ASX share's halved in 5 years, but I'm still sticking with it

Ask A Fund Manager: Chester Asset Management's Rob Tucker picks the stock he'd put away in the bottom drawer for…

Read more »

Three people walk in a line with their heads obscured by dark clouds.
Investing Strategies

Bargain or value trap? Fundie rates 3 ASX 200 shares going for cheap

Ask A Fund Manager: Chester Asset Management's Rob Tucker offers his thoughts on what to do with these troubled stocks.

Read more »

A boy stands firm on a rocky cliff holding a rocket in each hand and looking up toward the sky, anticipating flying into space.
Ask a Fund Manager

Fundie loves these 2 ASX 200 shares that are 'difficult to replicate'

Ask A Fund Manager: Chester Asset Management's Rob Tucker names a pair of stocks that are the best buys right…

Read more »

A headshot of Rob Tucker with a cityscape of high rise buildings in the background..
Investing Strategies

How we beat the stock market by 7% per year: fund manager

Ask A Fund Manager: Chester Asset Management's Rob Tucker reveals the secret sauce to running his successful portfolio.

Read more »

Three boxers, two men and a woman, stand in their training wear with fists raised in a fighting stance with serious looks on their faces against a background of a boxing gym.
Ask a Fund Manager

Here's one hot, one lukewarm and one cold ASX share: fundie

Ask A Fund Manager: Capital H Management's Harley Grosser decides whether he would buy three stocks that have plunged in…

Read more »

Capital H Management founder and chief executive Harley Grosser
Small Cap Shares

This $70 million ASX company just pulled off a $40 million deal: fundie

Ask A Fund Manager: Capital H Management's Harley Grosser reveals a pair of small-cap shares ready to take a massive…

Read more »

a climber scales a sheer rock cliff face reaching out for a handhold with foreboding grey clouds gathering in the sky above him.
Investing Strategies

The one ASX share we're holding onto for dear life: experts

Ask A Fund Manager: Discovery Fund's Chris Bainbridge and Mark Devcich also explain why PE ratios are absolute rubbish for…

Read more »

Three people run in a race through deep mud and puddles of water.
Broker Notes

These 3 ASX shares just halved. I would buy one of them: experts

Ask A Fund Manager: Discovery Fund's Chris Bainbridge and Mark Devcich examine whether this trio of stocks are bargain buys…

Read more »