We've been looking at alternative energy stocks lately, and have reviewed a number that have pretty nice upside potential. However, as investors, we need to spread out our risk, and while alternative energy is a way to invest in what our energy mix could (and should) look like, we also need to invest in what we know is working right now.

That means investing in coal.

I know, I know; you may wonder how I can switch from advocating alternative energy stocks one day to recommending you buy coal stocks the next. But the reason is simple: I can't afford to just invest in future technologies. Stocks derive value from anticipated future cash flows - and the higher the degree of uncertainty with respect to these cash flows, the greater the stock price risk.

Alternative energy stocks, like small and micro-cap stocks, tend to have higher risk. Take a stock that is both an alternative energy stock and a micro-cap and well, you see where I'm going with this. The destination is exponentially higher risk, despite higher potential return.

To decrease that risk, we need to invest in small caps that have virtually guaranteed future cash flows. Fortunately, I've uncovered a coal stock that is virtually guaranteed to grow revenues by over 100 percent in 2011. And I see 90 percent upside in this stock from its current price.

That's why...

I recently pulled the trigger and added a small coal mining company to the Small Cap Investor PRO portfolio. 

You can get my full research report on this stock when you sign up here.

***Coal may be the last thing on earth that many investors would consider putting a dime into.  

But the world is on course to transition back to coal. You may wish it wasn't the case, but it's inevitable. Coal isn't as clean of a fuel source as other options - but there is room for clean coal technologies to improve, and I believe they will. Investors should have a position in coal companies to be able to profit from the transition - or risk being left behind.

That's why I just picked up shares in this fast growing coal company. I believe the bull market for coal is just beginning to heat up, and the U.S. based company that I recently recommended has mines in China - the world's largest consumer of coal. 

China gets around 78% of its electricity from coal. Over the last fifteen years, coal helped the country double energy output.  Since 2002, China's coal consumption doubled as well. Coal demand in China is so strong, it must import coal from Australia and even the United States, but that just means that China's domestic coal producers have no problem selling all the coal they can dig up.

These are the reasons why I want to own this coal mining company - it has operations in China.

If you need a little more than just my word, The Dick Davis Digest recently included my analysis of this company. If you're not familiar with this publication, the editors scan a large number of financial newsletters and institutional research publications to find the best profit opportunities. In the latest edition, it covers two of my portfolio stocks.

***The transition back to coal is due to the depletion of global oil reserves. Regardless of whether you believe peak oil has occurred, or is about to occur, the fact remains that in the very near future, oil production will decrease at an increasing rate.  Furthermore, events like the uncapped oil well spilling into the Gulf of Mexico right now aren't helping to sell a future of oil dependence.

For the last 50 years, oil has been the primary source of energy supply. From 1899 to 1948, a period when oil exploration and transportation was far less economical than it was for coal, coal consumption far exceeded oil consumption.

Then in 1965, global oil use surpassed global coal use. The transition came at around 1500 million tons oil equivalent (mtoe). Since 1965 oil hasn't looked back, until now, and this chart shows why.

This chart projects coal and oil use globally through 2014, and shows that coal once again becomes the primary energy source for the world in mid 2012.

I was provided this chart from my friend and colleague Gregor Macdonald. Gregor is a leading oil analyst and energy sector investor. He invests his own money in energy stocks, and has been quite successful. I value his opinion, and have profitably acted on his advice on numerous occasions.

He's perplexed by the fact that more investors aren't aware that coal is staging a comeback. We both agree that investors need coal exposure, but that very few have it.

The company I uncovered is positioning itself to cash in on the coal boom, and I want you to be aware of the company's prospects so you can reach your own conclusions about whether a coal investment is right for you.

There are many ways to play the coal boom. You can buy a coal ETF, large cap miners, and domestic producers.  I've looked at all these options, and right now I believe I've uncovered the single best coal investment opportunity. This investment is for investors who have the stomach to invest in the occasionally volatile, but always hugely opportunistic small cap asset class.

You can get my full research report on this company, as well as all the other small-cap stocks I follow, when you sign up for a risk free trial subscription to Small Cap Investor PRO. Click here to get started.

I'm always on the lookout for great alternative energy companies, but that doesn't mean I'm going to disconnect from the electrical grid and stop driving my car. The reality right now is that world energy demand means coal use is going to overtake that of oil.

As investors, we need to spread out our risk. So let's invest in alternatives, but still stay invested in what's working right now.