Wednesday, March 26, 2008

Goldman Sachs Upgrades Coal Sector; Exports to Boom per FBR

A pretty smart time to make this move, as the coal names have pulled back substantially...
  • Goldman Sachs raised its rating on the U.S. coal sector to "neutral" from "cautious" and upgraded two companies to "buy," citing in part a strong steel market that uses coal.
  • "Given that valuation has retracted, we feel that now is a good time to take profits on our cautious coverage view and upgrade to neutral," Goldman said about the sector in a note.
  • Goldman raised Alpha Natural Resources Inc (ANR) and Consol Energy Inc (CNX) to "buy,", and Arch Coal Inc (ACI.), International Coal Group Inc (ICO) and Massey Energy Co (MEE) to "neutral."
  • Goldman raised its price target on Foundation Coal to $47 from $45. It also increased its target on Arch Coal to $44 from $35.
Interesting to see Peabody Energy (BTU) *not* mentioned; I will have to revisit Alpha Natural Resources - I have not looked at this name for quite a few years; when I used to own it it always seemed to lag the group but the chart looks excellent relative to the group.

In another note - Friedman Billings Ramsey finally is on board with what I've been touting since early in the fall - exports will be booming for coal
  • U.S. net coal exports are likely to rise 300% for the 2008/2009 shipping period as U.S. miners rush to fill demands on global supplies crimped by weather problems in South Africa and China, said Friedman Billings Ramsey analyst David Khani Monday in a research note. He said visits to several coal export ports last week supported his outlook for rising export capacity.
  • "While inevitably there will be transportation related congestion issues, railroad and barge companies are doing everything they can to boost capacity," Khani wrote. Many of the contracts that producers signed in December and January are committed to foreign buyers. Earlier this year, China introduced emergency measures to pump up coal inventories. South Africa's coal output has been pressured by wet weather.
I've been touting this group since September and some history can be found here [Dec 6: Coal Stocks Quietly in Bull Market] - I continue to believe its the forgotten commodity AND the trashing of the US dollar by our governmental structural imbalances plus Federal Reserve inflationary measures makes this a great export .... really many of the same macro themes as the US crops. So they sometimes get trashed by the hedge fund locusts who move in and out while chasing the sexy theme of the week (early cycle names baby!), but the fundamentals don't change - only the hedge fund computers weightings.

Easy way to play? KOL [Jan 14: New Coal ETF (KOL) Introduced from Van Eck Global]

Long Consol Energy, Massey Energy, Peabody Energy, Arch Coal in fund; no personal positions

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