Coal stocks heating up

After years in the doldrums, miners of the fossil fuel are perking up on an increase in natural gas prices and renewed interest in steelmaking stocks.

By Anthony Mirhaydari May 6, 2013 1:34PM

 Coal miners copyright Digital Vision, SuperStockWhile material stocks have been beaten up all year, it's nothing like the hurt that investors have been putting on coal stocks. 


A combination of factors worked against the industry. The fracking revolution pushed down natural gas prices and encouraged electric utilities to shutter coal-burning facilities in favor of cleaner burning natural gas turbines. Worries over possible climate change legislation out of Washington accelerated this.

 

And more recently, the year-to-date slide in steelmaker stocks -- an industry contending with lower demand out of weakening Asian and European economies -- further pressured the group. In fact, the Market Vectors Coal ETF (KOL) has traded in lockstep with the Market Vectors Steel (SLX) since the 2009 bear market low. For good reason: Coal is a critical component in the steelmaking process.

 

But that's changing now as fast-moving coal stocks break to the upside. 

 

The chart below shows the post-2009 performance of both the KOL and SLX ETFs. It's not pretty. After peaking during the inflation scare of 2011, before the August 2011 downgrade of the U.S. Treasury's credit rating roiled markets and the economy, both went on to lose and 59% and 47% respectively through this April.

 

 

Now, with key industrial and cyclical stocks perking up last Friday -- on higher inflation expectations as emerging market central banks join with the Federal Reserve, the European Central Bank, the Bank of Japan, and the Bank of England to push more cheap money into the system -- buyers are starting to bargain hunt in the area.

 

Look at James River Coal Company (JRCC), which is trying to shore up its balance sheet and ride out the storm in its industry. Shares are bouncing off if its 2012, forming a double-bottom base of support to rally off of. Merely a trip to its 200-day moving average would be worth 32% from here. A retest of the October high would worth a 174% return. 

 

 

Technically, JRCC's setup looks very attractive. Buying volume is coming in here, and directional indicator is turning positive, and the percentage price oscillator is moving up through zero. All are signs of an emerging new uptrend. Be warned that at around $2.15 a share, JRCC is a fast mover.

 

Coal mining equipment maker Joy Global (JOY) is also on the move, testing its 200-day moving average on strong volume. Technical indicators also suggest a new uptrend is being established. Compared to JRCC, JOY would be more appropriate for a conservative investor.

 

Fundamentally, all depends on getting coal shipments back up. JRCC shipped 2.4 million tons of the black stuff in Q1; down from 3.1 million the year before.

 

During its recent earnings call, JRCC's management noted that the coal market is already benefiting from higher natural gas prices, which are up 33% since early January -- increasing the incentive for utilities to restart coal power plants. Competitors are looking for metallurgical coal prices to firm and volumes to increase slightly.

 

All of this is happening as the industry leaves behind what JRCC CEO Peter Socha believes "will be remembered as one of the most difficult years in the history of the U.S. coal industry."

 

I'm adding JRCC to my Edge Letter Sample Portfolio. I'm also adding a position in Finnish phone maker Nokia (NOK) and selling Facebook (FB) today, as shown below.

 

 

Disclosure: Anthony has recommended JRCC to his clients.

 

Check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​​​​​​​​​​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.



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17Comments
May 6, 2013 4:22PM
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U.S.National Debt clock in real time is smoking hot.

May 6, 2013 4:47PM
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Anthony's boss must have finally stepped in and made him quit writing the end of the world crisis reports!
May 6, 2013 3:33PM
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And then they're trying to set up that coal shipping port in the northwest, maybe Washington or Oregon.  Roll in trains of coal and ship it to Asia.  The local citizens are fighting it tooth and nail.  But, hey, jobs are jobs.

 

 

May 6, 2013 3:14PM
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Some coal Companies have been heating up for awhile, since the downturn due to the EPA...

Now I'm just waiting for the Rail traffic to get hotter, that's mostly the only way coal travels to Ports.

 

As for China....Not really sure about all that, know they have a lot of un-mined coal, and are mining it at a fervid pace and under very stressful, unsafe conditions...

But they are also buying mega tons of coal...

Our company has contracts for delivery..

May 6, 2013 8:35PM
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My number one rule when betting the ponies is never bet against a horse that hasn't been beat.  I don't care if the horse has won by a nose 10 times in a row or is moving up in class, until that horse has been beaten, I will not bet against it.  Probably 90% of the time, I never bet with the horse either.  Something really stupid I picked up, but it's a rule I use to help me wager.  (hold on I'm going somewhere with this)  I think given the dow theory, double/triple tops, higher gas prices, and a list of other events, it was also in Tony's rules and experiences that the market was going to role over as it has done the previous two years.  So based on that line of thinking, since the market hit a new high and all the other indexes are hitting new highs, then the market must be going higher, so everyone pile on?  It's just a theory, rule, whatever you want to call it, no more factual then me not betting against a horse that has never lost no matter how high they move up in class.  So I think all you lemmings out there should take it easy on Tony, as he is the only person that makes remotely any kind of sense since 2008.  I personally think this new high is a head fake, and the walls of Jericho will soon come tumbling down!  You want Tony on that wall, we need Tony on that wall!  Tell your boss to go to hell and keep writing the end of the world stuff-I love it!
May 6, 2013 10:26PM
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Weenies.  A little coal dust in the lungs never hurt anybody.

 

 

May 6, 2013 9:33PM
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David not sure about your betting prowness....??

 

Wouldn't you have to tendancy to bet that favorite or "never lost"...

In the Nightly Doubles, Exactas, Trifectas, or SuperFectas...Just askin'.

 

As far as Antman on the Wall, I'm on the wall and don't really need him on it all the time..

And if he tells his boss all that bullshidt, he probably could write part-time for Seeking or Motley..??

May 6, 2013 4:09PM
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oh my God! don't mention COAL to liberal whackjob environMENTAL loonies they hate that kind of progress!!! Coal?!!! you mean jobs?? ahhhhhhhh!!!!!! obama was supposed to put the coal industry outta business that bastard!!!!!! and put us all in the Dark Ages where the lefty loonies live!!!!

 

hmmm and you know what else is heating up?, democraps committing fraud, more democraps arrested for fraud here in New York City, hehe how many of those liberal frauds does that make now?? like 6 or 8 plus collaborators of course, more like 20 total!! so far in Manhattan and Albany, you democrapic libs must be soooooo proud, and the common denominator is the same,

 

'blah, blah blah..... putting their own interests ahead of others....blah, blah, blah...taking bribes, embezzling funds to foot the bill for a lavish lifestyle etc... etc....'

 

hmm much like the 1%ers you low life dirt bag scum libs always whine about right? these are your people! you vote for scum like this....it's official the state of New York is even more corrupt than Chicago...in my view anyway

 

hmmm democraps in charge of Chicago, New York, California....no wonder we're in the toilet and these are just 3 states I mentioned!!

 

what is it anyway with you democrapic slobs?? don't you make 'enough' money? you have to steal from the public? oh such vermin!!

May 6, 2013 8:43PM
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COAL?  Are you kidding me?  You can't get the dirt out of coal when you burn it.  Coal stocks are dead.  Hey........................what happened to Anthony's END OF THE WORLD articles?
May 6, 2013 9:27PM
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About 4 hours ago I questioned a commentors statement...It didn't post so I wasn't going to screw with it nor waste anymore of my time...

 It was when some idiot posted a rant, that had little, NO NOTHING to do with the Article..

 

You need help, please seek help and make sure to attend the meetings..

They are now watching you..

May 6, 2013 2:53PM
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The largest supply of processed coal ever-- is sitting in China to debase any speculation on it's price. You have to stop thinking that this or that way is going to save your purse. Get OUT of organized and corrupt investing and let it fall without taking YOU down with it. Go fund some small businesses where you live. It will make you smile if you were in the shadows making it stay the course. Anything you try to do through Wall Street is Bernanke-toxic... you will lose everything.
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