[laserboy]

Commodity stocks are basically an extended math problem.

Figure out how much the company has in proven reserves.

Figure out how much money it will take to bring their commodity to market. What is their cash cost per ton? What is the return on equity for their mines?

Then do a discounted cash flow analysis over the life of the mine.

Now do the same for probably reserves and additional properties. Do they own any other profitable properties and is it feasible to bring these to market?

You should also consider management. Are they good about reinvesting their profits and returning value to shareholders? This is not as much of a concern with income trusts since they disctibute most of their profits as dividends.

From a cursory glance with FDG at its current stock price, you are bascially paying $5 billion for $60 billion in met coal reserves. Is that good? If you don't know the answer, you probably shouldn't be invested in it.

With commodity stocks, by the way, you are not looking for stocks that are merely undervalued. You are looking to pay pennies on the dollar for their assets. That is how you hit ten baggers.

You also want to look at the macroeconomic picture for steel and met coal. China is the primary driver behind the steel market. They consume 2 and half times more steel than any other country in the world, and account for practically all the growth. But is that growth sustainable? There is a huge construction bubble in the country, 40% of GDP is spent on capital and a large percentage of the homes on the cost are unoccupied investment properties.