Thursday, May 1, 2008

Walter Industries (WLT) - the Most Fascinating Company

I've been watching this Walter Industries (WLT) for 2 months now as it kept showing up on my weekly top performing lists throughout February; just kicking behind week after week...

....we got you some metallurgical coal (yes!)
....we got you some natural gas (yes!)
....we got you some homebuilder...

... I said... we got you some homebuilder...

Ruh roh Raggy!

No wait! Homebuilders are the new darlings of '08... so I got you some metallurgical coal (steel play), with some natural gas, WITH a homebuilder, and as a cherry on top a financing division! Bonus!

What does that give you? Put it in a pot, mix it all about ... 100% gains since the January 2008 low. Nice!

So if the 2nd half "no inflation but enough inflation so that commodities boom, but not enough that it hurts US consumers, so they can buy houses, so therefore you must buy homebuilders, and then credit markets clear up perfectly so we can finance those houses" scenario works out (and don't you dare believe it won't) this looks like the 1 stock you can play all those trends, under 1 roof. Wowsers! They reported tonight and while the housing/financing side was a disaster (nevermind that, it will be the strength of the company in 6 months), I was interested in the coal side of the business which is.... booming.
  • Walter Industries also announced today that it has settled approximately two million metric tons of its 2008-2009 metallurgical coal tonnage in excess of $315 per metric ton FOB Port. The Company expects to settle another 1.1 million metric tons over the next few weeks in a similar price range and has an additional 0.6 million metric tons available for the second quarter 2009 that will be priced later this year.
  • "Continuing supply constraints and robust demand in the international steel market have set the stage for ongoing strength in metallurgical coal pricing beyond the 2008-2009 contract year. With about one million tons of incremental production capacity scheduled to begin coming online in the second half of 2008 and approximately two million additional tons coming online in the first half of 2009, we are very well positioned to take advantage of the strong market for our coal."
So folks they are selling their met coal for $315, and taking it out of the ground for under $50. Want to see how they project margins for met coal for next year?

Q1: $8
Q2: $20-$21
Q3: $75-$81
Q4: $90-$96

So as you see the "strong dollar" is not going to do diddly unless it appreciates by say 750-900% by next year at this time... at which point I'd still be a bull on coal. As long as those Chinese want steel at any price, we are happy campers. I am trying to hand you a gift here, so that you make enough money so that EVERY reader can invest in my mutual fund when we launch in 2009 (right?) - remember, coal is going to be next year's fertilizer... with CNBC anchors aghast at coal and wondering "where did this all come action come from, I thought the bubble ended last year with that stupid potash!". I'm telling you now, a year ahead of time. I'm using Alpha Natural Resources (ANR) and Massey Energy (MEE) more specific for the metallurgical coal but any coal name has some exposure. [Apr 8: Changing Coal Allocation - Peabody Energy Out - Alpha Natural Resources In] I did a full analysis in that entry comparing the 2 names and potential profits/upside.

So this 1 blog entry here, will pay for your yearly subscription to my website - that's how much you can make. What's that? It's a free site? Ok ok... details details. If I did charge - you'd be making it up in spades from this 1 entry.

Missed fertilizer? Get coal. So you can tell your friends next year you were there first. Come back in 1 year, book some profits, send check to my fund and we are all happy. In the meantime, you can sort of laugh quietly to self when CNBC tells you it's time to get out because the dollar will be going up 7% vs the Euro in the next 2 months. And when the stocks fall because the hedge fund computers say it's time to buy Macy's instead... you just shake head in mock horror.

(please note the above is not advice from me, telling you, what to buy because that could put me in liability - I'm just giving you a theoretical situation - if you buy coal stocks and lose 90% of your holdings that's your fault) ;)

Long Alpha Natural Resources, Massey Energy in fund and personal account

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