The best opportunities arise when there is a "divergence from the consensus." This phrase often refers to analysts' profit forecasts, and the wide range of estimates spells opportunity if you know on which side of the fence to land.
Yet there is another type of consensus that can yield opportunities -- when most individual investors have concluded that a particular industry is headed for good or bad times. That's when it's often smart to go against the crowd.
Indeed, I think I've found that both of these opportunities when it comes to a particularly "hated" commodity among investors.
Increasingly strict environmental regulations coupled with a plunge in natural gas prices have left many to believe that it has no future. Yet there are more than a few bullish price targets for a few key players in this industry.
When I see the two scenarios I mentioned above (varying opinions among analysts and a feeling among investors that the stocks are "no good") -- it's time to dig deeper.
And this is exactly what appears to be the case with coal stocks.
Why even bother?
The Market Vectors Coal ETF (NYSE: KOL), which is an exchange-traded fund (ETF) that owns a wide range of global coal-mining firms and the companies that provide equipment to the industry, has slid sharply in the past year. Remarkably, this ETF understates the pain, as it holds a range of China-based coal-mining firms that have held up well in 2012: U.S.-based coal-mining firms have fallen even more dramatically in some cases than this ETF implies.
Get the Market Movements in Advance: William's Edge Webinar for Tuesday, March 11th, 2014 | John Ransom