When to Sell Coal Stocks

 | Sep 05, 2012 | 8:35 PM EDT  | Comments
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Stock quotes in this article:

btu

,

cnx

,

wlt

,

vale

When is it too late to sell the coal stocks? Is it ever? Judging from the endless downgrades the answer is never. I don't like coal. I think that if Obama is reelected the EPA will mandate no new coal plants ever and will demand early phase out of most of them. I don't like the steel business either, so I don't see a lot of coal being used there, at least domestically.

Coal is in secular decline.

Then why didn't the stocks go down today after Raymond James joined the downgrade party?

First, both Union Pacific (UNP) and CSX (CSX), while acknowledging vast coal weakness, are now saying they think the declines can moderate. They haven't been saying that. They have been out-and-out bears on coal. But they are looking at the inventories of their customers and judging them leaner than the utilities might like going into the winter.

Second, China's still opening coal plants constantly, as is India. That's export demand.

Third, the coal companies are starting to be a little more realistic and rational and are closing some of their costlier, more marginal facilities. Consol (CNX), Walter (WLT) and Peabody (BTU) have all announced closing of some idle capacity.

Now, I don't want to endorse the coal stocks as Buys. But I do think that they can have a couple of days bounce before they need to be sold again.

Why bother to sell at all? Because if you actually check the roster most analysts are STILL recommending a bunch of these, especially Peabody, where I count 19 Buys out of 26 analysts! Seems like a lot of people like the "value" in coal.

So, let them lift on the basis that one of the myriad recommenders will say "worst is over, they didn't go down on the Raymond James call" and reiterate Buys based on the comments from CSX and Union Pacific coupled with the closings.

And then I would sell 'em again.

You want ore? Go buy some Vale (VALE). Cut in half and iron, at a three-year low, isn't known as something the EPA or anyone else is demanding be shut and it doesn't have a cheap natural gas alternative.

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