Rally In Coal Stocks Goes Unnoticed

The street reports that rally in coal stocks goes unnoticed.

(emphasis mine) [my comment]

Rally in Coal Stocks Goes Unnoticed
Guest Contributor
05/21/09 - 03:00 AM EDT
By Chuck LeBeau, director of analytics at www.SmartStops.net.

There have been many market segments that have rallied substantially over the last two months but as might be expected it is the tech stocks and banking stocks that have received the most attention.
The quiet rally in more mundane areas like coal has mostly gone unnoticed. Perhaps we can borrow a miner's helmet lamp and shine some light on these stocks.

Foundation Coal Holdings (FCL Quote), in just 11 market days, leaped to a May high of $31.54 from $14.65.

Peabody Energy (BTU Quote) has seesawed its way from a March low of $20.17 to a May high of $34.15.

James River Coal (JRCC Quote) has crept to a May high of $24.30 from a March low of $8.85, an impressive gain of 174%.

And the leader of the pack, Patriot Coal (PCX Quote), has recovered from a March low of $2.76 to a May high of $10.90. That represents a quiet gain of 295%.

Representing the general strength in the coal stocks, the Market Vectors Coal ETF (KOL Quote), has climbed from a March low of $10.88 to a May high of $24.

My reaction: I am feeling a little good about myself. Long time readers might remember one of my first articles back in November of 2008 where I highlighted coal producers as an attractive investment.

Friday, November 7, 2008
Coal Producers Are Trading At Fire Sale Prices
by Eric deCarbonnel

For investors looking for a safe alternative to gold to hedge against a dollar collapse, 3 Coal Producers (MEE [went from $10 to $26], BTU [went from $17 to $37], JRCC [went from $8 to $24]) look attractive at today's fire sale prices. These three companies have been badly hurt by the strengthening dollar, and have been aggressively sold off. Investerms.com reports that James River Still Faces Some Hurdles (Hurdles = weakening foreign demand due to strong dollar)


My reaction: Export oriented US companies like these 3 Coal Producers (MEE, BTU, JRCC) are trading at Fire Sale Prices based on the flawed belief of continuing dollar strength. Since they will profit handsomely when the dollar falls, their outlook over the next year is very positive.

Below is a 2-year chart for James River Coal Company (NDAQ: JRCC).
Its 80% drop from $63 to under $12 takes JRCC to a very attractive level.

[The chart above shows that coal stocks still have a lot of room to move upwards.]

For the record, I still believe coal producers are attractive stocks to own, even at their new higher level.

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One Response to Rally In Coal Stocks Goes Unnoticed

  1. Anonymous says:

    Coal is by far the cheapest fossil fuel when measured in Dollars per BTU (not the ticker symbol of Peabody, but the abbreviation for British Thermal Unit).

    The argument against coal stocks is that coal companies produce already at capacity with little prospect for increasing production. Secondly, there is the growing awareness that burning coal is the dirtiest method for generating electricity. Obama has threatened to introduce special taxes in order to make burning coal uncompetitive in comparison to other forms of generating electricity.

    The future of coal depends very much on whether carbon sequestration turns out to be a viable technology. Right now, natural gas seems to have an edge over coal.

    I hold a small position in BTU (Peabody) and PCX, but I am hesitant to add to these positions.

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