All the coal names are mixtures of metallurgical (going into steel) versus thermal (traditional power source you think of when you think of coal). Both sides of the equation are seeing strong increases, but the metallurgical has really taken off; and those names with more exposure to metallurgical have seen the biggest stock spikes over the past few months. Here is a chart of a bevy of coal names over the past 3 months so you can see even within this rising tide, we have speedboats, sailboats, and rowboats :) This was the reasoning behind by decision to flip out of Peabody Energy (BTU) and into Alpha Natural Resources (ANR) back in early April [Apr 8: Changing Coal Allocation - Peabody Energy Out - Alpha Natural Resources In]
Now in the portfolio we've owned 2 speedboats (which I am keeping due to higher metallurgical coal exposure), and 2 rowboats (nice rowboats by the way - but more of an exposure to thermal coal), so I am applying the exact same thinking as to which of the 2 rowboats to cut out - Arch Coal (ACI) or Consol Energy (CNX); aside from the metallurgical coal to thermal coal mix, I also want to have as much production that is not yet priced (under contract), anticipating higher prices in the future. I'll admit, this is one period of time I wish I had a major investment bank research report showing me all this sector data in 1 spot, since this is a bunch of digging to find it all, across 8 to 10 companies.
But in a general sense, looking at Consol's latest earning report we see the following for 2009/2010
2009 Tons Estimated 70-74 M
2009 Tons Priced 44.6
% Priced (approx) = 62%
2010 Tons Estimated 76.6-80.6 M
2010 Tons Priced 24.2
% Priced (approx) = 31%
Compared to Arch Coal, which in its latest earnings has some data (it's not so clean) but I am estimating something around 140 to 150M in tonnage for 2009 and 2010 (this is my guesswork, could be higher/lower but should be ballpark)
Of that in 2009, 75-85M is unpriced and in 2010, 95-105M
If my estimates on tonnage are accurate this would give % priced of (approx) 43% in 2009, and 33% in 2010. So if completely, accurate the companies have similar 2010 production unpriced, but Arch has more 2009 production unpriced, hence as coal prices continue to rise month by month, they should see more upside in 2009.
Again, I like the whole sector - one can do well with any coal stock I believe, but I am just trying to decide among these 2 horses, as to which should be the Third Musketeer. I might add a 4th Musketeer down the road as there are some other potential targets in this sector, but not until we see a meaningful contraction from this epic move... Alpha Natural Resources is now up 60% in a month for example.
So with that said, I am closing Consol Energy in the $97s, and will concentrate on the other 3 names (I bought a little Arch Coal today to keep some of the exposure to the sector consistent). This has been a very good stock for us (and I continue to like it); we've owned it since September 13th, 2007 before everyone and their mother jumped on the coal bandwagon. [Coal Stocks Quietly in a Bull Market] This is the chart since September (keep in mind we had major market corrections in November 07, January 08, and March 08 so this performance is that much more impressive)
Now that guys like Larry Kudlow are jumping on the bandwagon it makes me near term bearish, as I got when Neil Cavuto uttered the words "Intrepid Potash", which pretty much marked the top within 48 hours for the fertilizers ;) [Apr 22: Cutting More Fertilizer]
Usually a significant event like a new IPO in the sector or a large buyout marks a near term top in a sector - I am not saying this Intrepid Potash (IPI) IPO is the thing, but I have not seen a level of bullishness in a sector as I've seen here, since the solar days of fall 2007. Even Neil Cavuto was talking about the Intrepid IPO last night. That scares me, and when these things reverse I'm going to call it the Cavuto top (granted, he did not know how to pronounce "potash" either).
When these talking heads jump on a group... after a massive run (coal has just had one, just like fertilizer had one from late March to late April), I start shifting to the sideline (as I've now done with coal) from my previous overweight stance. Doesn't mean the stocks are done; but risk/reward starts to turn more towards risk in my book. So we called that fertilizer version the Cavuto top; we'll see if this is the Kudlow top. ;)
Long Arch Coal, Massey Energy, Alpha Natural Resources in fund; no personal positions
10 comments:
Mark, just an update ..
India's inflation came out as 8.1%, ridiculously high. The government is worried and can take necessary STEPS at anytime.
My brother just informed me that there might be an increase in interst rate anytime next week.
the economy growing at9% and inflation is 8% ..hehehe..
not good for the market..especially banking sector.
Thanks for the info; the Indian banks are reflecting that reality.
What happens to US banks if Fed decides to raise rates in 1st half 2009? I mean with the economic recovery in 2nd half 2008, it should be a no brainer. Ah nevermind - no inflation here = no reason to ever raise rates again ;)
I would ask the Indians to send their inflation reporting team to USA for a crash course on how to accurately report numbers. Anything over 4% should be thrown to garbage and never see light of day. That would panic the people. :)
Exactly, the fed have to raise rates sometime later this year, may be after elections (hmmm..)
July 1st, the start date of recovery in 2nd half of 2008, is fast approaching. Get ready to bid the stocks at 930am on that date. DOW and SP will skyrockets, no turning back.
Contradictory statements: fed will raise rates and economy aka, market will Zooom..
wow..in which world we are in?
argh I hate Kudlow...he's one of those that drinks too much Kool-Aid.
Mark,
what do you think of Fording as coal play?
also, I am not sure if you fund can hold Canadian
Westshore Terminals Income Fund
has been a cash cow shipping BC coal off its terminal
Can't own the Canadian thing
FDG is good too; I actually owned that one 3-4 years ago (never performed for me back then though) :)
I was a few years early perhaps ...
sheng,
Drinks too much Kool Aid? He is a Kool Aid vendor for gosh sakes.
tRADER MARK
Great job, again. I am worried about coal too now that Washing ton wants to do that cap thing. Can you explain that..tax and cap? It was on Kudlow last night. The next hot thing may be the rails....They have been hot, and I know they are related to coal. But I heard trucking companies are putting their loads on them. Also Fast money guys talked about how we need whole new transport system in US, but where's the money for that? The companies can make a boatload if they make hgih speed rails how they have in the Europe countries and other smart countries. We are the new third world. My hudsand is a govt employee at post office, and I dont care what the govt says, and its HIS employer! but his pay is NOT keeping up with price of food or gas, sorry to say. The numbers are so made up.
But the next hot sector,I am afraid to say it, it was just on today on FOX news and Cavuto, maybe solars for a second. Heres my thinking. I have played these for years. At the end of run ups in the market, which we have had, these act fanatically. CSCO is a great indicator stock; when it is frantic, you can know the market is reversing. The Friday before last, it was frantic, and the market sold off the folloiwng week, and HARD. THREE OR FOUR HARD sell off days. I was short alot of fertilizer, so did good.
The news so happened to come out about Germany subsidies to give them , the solars, a catalyst. LDK needs 7 trading days to double, that's jsut how it trades, then it comes back down with the market. SPWR, same thing...look at charts, and put the diamonds over them. THEY go up right before market comes down.
I would buy solars, esp. since the DNC is now, and everyone is so drunk with GREEN and this made up global warming, koolaid please..>EVEN the UN is involved in the global warming...getting prepared for one world government, and one world currency...the end is near.
SOLARS? RAILS? JUST THINKING>>>>
DONT DRINK THE KOOLAID
MO
Mark,
What's with the monster parabolic move by Patriot Coal??? It this a pure momentum play or is there something to this run. PCX is outperforming all the other coal stocks by a mile now. Of all the coal stocks I follow, maybe ANR is kind of keeping pace (which I thought is too fast as well!)
PCX is sort of like an IPO since it was spun out of BTU last year. So it has limited shares which I think helps to accelerate its growth.
The whole group is on fire... again. An epic run. This reminds me of internet stocks in 99 ;)
Post a Comment