Out Fox The $treet

The recent Supreme Court ruling gives coal miners some hope of reduced regulations on the industry. The news arrived too late for the coal industry, as investments have already been made to replace coal power plants. Until Peabody Energy turns around the negative EPS trend, investors should avoid the stock. Coal stocks remain in an absolute crash mode with a limited number trading above $1. The sector rallied on Monday due to a Supreme Court ruling that knocked down a hurtful rule for coal enacted by the Environmental Protection Agency in 2011. Coal stocks rallied on the news, but it isn't clear whether the overturning of the EPA air pollution rule will have any impact on the market considering the late date of the overturning. The power plant market has already shifted toward cheap natural gas, but if any stock has the potential to benefit from a Supreme Court decision, it would be Peabody Energy (NYSE: BTU ) . Looking at the chart below...

 Summary Peabody Energy reported Q3'14 earnings that generally beat estimates. The company continues to forecast an oversupply of coal despite solid global demand. The stock remains beaten down, but it needs catalysts to turn around before it becomes a buy.  Reading through the Peabody Energy (NYSE: BTU ) quarterly transcript and the absolute numbers are horrible. The domestic coal miner continues to face an industry with short-term oversupply and promising long-term global demand scenarios. The stock remains in a downtrend, but one prime reason to not give up tracking the stock were the rebounds in the steel stocks. US Steel Group (NYSE: X ) is a major user of metallurgical coal and faced a similar weak outlook back in mid-2013, yet the stock went on to soar roughly 150% in the following year. At some point, the supply and demand equation could reverse back in favor of coal miners similar to how it has for domestic steel pr...

The headlines for Consol Energy's  ( NYSE: CNX     ) recent quarterly earnings report focused on the huge ramp-up in Marcellus shale production, yet the vast majority of the company's revenue is still derived from coal. Even worse, Consol obtains more revenue from other natural gas properties outside the Marcellus shale that lack growth. Consol Energy generated an impressive 94% production growth in the booming shale in Pennsylvania and West Virginia, but the coal operations make the stock difficult to value any higher. Even the best-run domestic coal miner, Peabody Energy ( NYSE: BTU     ) , trades at a substantial discount to annual sales. In that manner, investors are placing a huge premium on Marcellus shale growth to justify a market cap of nearly $11 billion for Consol Energy with forecast annual sales for 2014 of less than $4 billion, mostly obtained from coal mining. Read the full article here . Disclosure: No positions men...

The new proposed rules by the Environmental Protection Agency, or EPA, have far reaching impacts on coal used by power plants to produce electricity. It doesn't, however, impact coal used for steel and especially that exported to foreign locations. Based on this news, the large 10% decline by Walter Energy ( NYSE: WLT     ) is perplexing considering the coal miner is almost completely focused on the metallurgical export market. With the recently released first-quarter results, the company has plenty of issues outside the EPA. From a China slowdown to an oversupplied metallurgical coal market, the company has plunged to new low after new low. Ironically, the ruling has a greater impact on  Peabody Energy ( NYSE: BTU     ) and the majority of stocks in the Market Vectors Coal ETF , which ended up virtually flat the day of the ruling. The reaction is very suggestive of a market overly negative on Walter Energy and fellow met coal leader Alpha Nat...

The coal sector continues to be hammered with declining prices and lower margins, causing some large miners to continuously report losses. In the case of Alpha Natural Resources ( NYSE: ANR     ) , the metallurgical-focused miner is facing lower pricing for the prime coal used to produce steel. Its most recent earnings report showed that the company generated a very shocking profit, however. At first glance, Alpha Natural suggested that the company produced first quarter 2014 revenue of $1.1 billion and adjusted EBITDA of $289 million. Considering the weaker metallurgical coal markets and that the company only made an adjusted EBITDA of $71.4 million in the prior quarter, these numbers seemed off. After quickly reviewing the details, the gains were based on an asset transaction that was clearly too good to be true. Read full article here . Disclosure: Long ANR. Pleas read this disclaimer page for more details.

Though the coal sector continues to struggle due to plunging prices, the news isn't all bad for the sector. In fact, the confluence of information from Peabody Energy ( NYSE: BTU     ) suggests that a turn is all but certain. For domestic coal investors, Peabody Energy provides the best insight into the global commodity with mines in both the U.S. and Australia along with customers on six different continents. The industry news is consistent with the information doled out by Arch Coal ( NYSE: ACI     ) a few days ago. Read the full article here . Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Consol Energy ( NYSE: CNX     ) released first quarter updates for the gas operations and coal mines that sent coal stocks soaring. No surprise that the Marcellus producer saw strong growth in the gas operations, but the market sent the coal sector higher with the forecast for higher coal production for the year. Consol Energy was traditionally a coal miner that is quickly shifting toward a natural gas focus with the fast growth in Marcellus Shale production. The news comes on an interesting day, with James River Coal Co.  filing for bankruptcy at the same time. Read the full article here . Disclosure: No position mentioned. Please review the disclaimer page for more details. 

The biggest beneficiary of plunging natural gas inventories might not be a company in the natural gas industry. The coal industry took a big hit due to the suddenly abundant and cheap energy source developed over the last decade. Coal stocks are arguably among the most hated stocks on the planet. Stocks such as Peabody Energy ( NYSE: BTU     ) and Arch Coal   ( NYSE: ACI     ) will benefit, however, the most from a switch back to coal as a fuel source for electricity production. Alpha Natural Resources ( NYSE: ANR     ) might provide the most upside, especially if investors see a global rebound that increases the demand for metallurgical coal used in steel production. In general, the sector has been crushed so much in the last couple of years that any snap-back in demand will raise all the stocks in the sector. Read the full article here . Disclosure: Long ANR. Please review the disclaimer page for more details. 

Alliance Resource Partners, L.P. ( NASDAQ: ARLP     ) might have the best set of coal assets for the current regulatory environment. The company engages in the production and marketing of coal and operates 11 underground mining complexes in the Illinois Basin, Central Appalachian, and Northern Appalachian regions. The key to success is the lower costs of the Illinois Basin coal that has a cost advantage now that electric utility scrubbers allow for the use of the high-sulfur coal to meet EPA regulations. Read the full article here . Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Though the stocks haven’t traded well the last couple of days, costs cuts have improved the potential for rebounds in both Peabody Energy (NYSE: BTU ) and Walter Energy (NYSE: WLT ) . Peabody easily smashed estimates while Walter provided hope that a liquidity crisis wouldn’t smash the stock. Coal stocks trade at multi-year lows as falling commodity prices have hit revenues, but now the companies have been able to drastically more » Disclosure: Long ANR. Please read the full disclaimer page for more details. 

Though coal could not be more hated and analysts expect years of losses at Alpha Natural Resources ( ANR ) , this might actually be the time for the stock. As written last month (see Is The Coal Supercycle Back? ), the coal super cycle could be intact so investors need to keep an eye on this sector. The world's third-leading producer of metallurgical coal faces a tough road ahead due to pricing impacted by structural changes for CAPP thermal coal and weak global demand for metallurgical coal. As with any commodity, the market can be very cyclical and volatile providing opportunities to invest at periods of severe weakness. The company has been in a continuous restructuring mode for several years now allowing it to dramatically reduce costs for the next up cycle. Now might be the time to move back into Alpha Natural. Read the full article at Seeking Alpha. Disclosure: Long ANR. Please review the disclaimer page for more details. 

After reading the quarterly report for Peabody Energy ( BTU ), one has to wonder if the coal supercycle is back. A few years back the CEO proclaimed that coal had begun a long-term surge in demand yet the stock began a major slump as new mines and higher costs caused profits to plummet. As US investors remain focused on last year's domestic switch to natural gas from thermal coal, the global demand for coal remains as strong as ever. One major theme highlights the global demand picture for coal. Where alternative fuel prices are cheap, consumers prefer that source whether natural gas, nuclear, or alternative fuels. In the cases where alternatives don't exist or are no longer deemed appealing, coal demand is set to grow dramatically. The situation in the US is incorrectly framed as a preference for a cleaner alternative to coal, but the scenario might see a dramatic shift as natural gas prices soar in 2013. Read the full article at Seeking Alpha. Disclosu...

The CEO of Peabody Energy (BTU) is famous for proclaiming the Super Cycle in coal. A funny thing happened on the way to realizing this proclamation. The company produces and sells thermal and metallurgical coal to customers in more than 25 countries on six continents. Market data still shows healthy demand for coal in Asian countries that continue to build coal-fired power plants. Unfortunately for coal producers, a chain of events from slowing growth in China to the advances in production of natural gas in the U.S. has slowed down the short-term demand for coal. Read the full article at Seeking Alpha. Disclosure: No position mentioned. Please review the disclaimer page for more details. 

With the nuclear crisis in Japan, it's become very clear that coal will remain the King fuel of the developed world and maybe even the emerging world as even China delays its nuclear program. Considering the Opportunistic portfolios managed by Stone Fox has a heavy does of coal investments this is good news. Even if the reason for the gain is because of such a horrible tragedy. Sadly, though nuclear has many benefits it can be a very unstable fuel option. Sure coal has likely killed more people especially in the underground mining and even via the pollution caused by the burning of the material, but it never causes mass panic of a major catastrophe. With coal, the only people that really face daily danger are the miners. People supposedly paid for taking that risk and fulling understanding the danger whether they can find other employment or if that is the only option in the area. With radiation though, whole cities can be destroyed and even though a major catastrophe hasn't ...

With all the focus on BP, everybody has forgotten the damage done to the stock of Massey Energy (MEE) after the explosion at the Upper Big Branch Mine (UBB) in early April. MEE might be thankful for the attention focused on BP, but the stock price hasn't come close to recovering. All mining stocks are down over the last couple months so its not as though MEE has been harshly punished just for the explosion but it is down significantly more then industry leader Peabody Energy (BTU). The difference between MEE and BP and what interests us in the stock is that they've made several brilliant moves even in the face of the tragedy. MEE is working to enhance shareholder value while BP hopes to keep shareholder value from completely collapsing. While the CEO of BP can't seem to catch a break, the CEO of MEE has made numerous moves that benefit his company. The damage to MEE seems to be in the past and recently they've done a decent job showing that the government is possibly re...

Coal companies were hit hard intraday becuase of supposed weak coal import data from China. Guess the data was negative or positive depending on how one viewed it. On one hand the imports were down 11% from September. On the other hand they were up 220% over last year. Apparently the market was looking for a number similar to Septembers. Regardless the YOY gains are enormous and the month to month numbers are bound to fluctuate. The trend still appears for bullish for longs. Companies that we like such as Alpha Natural Resources (ANR) and the new IPO Cloud Peak Energy (CLD) were all hit hard today especially in comparison to the strong gains in the market. ANR was down 5% from its high around the opening bell. U.S. coal mining shares fell on Monday after data showed China's coal imports dropped 11 percent in the last month, even though exporters expect a booming market in the Pacific region for the next few years. Indeed, the latest official Chinese customs data showed coal impo...

The Cloud Peak Energy IPO (CLD) priced last night at $15 which was below the original range of $16-18. Very perplexing considering the commodities sector and especially coal stocks have been very hot of late. Then Reuters published some analyst comments that made us more bullish. Basically the analysts are concerned that the proceeds are going back to Rio Tinto (RTP) and that the deal was overpriced and coal demand is uncertain. Huh? Are they serious? Why has Peabody Energy (BTU) and Massey Energy (MEE) rallied so hard lately? This really seems like Wall St playing games with a forced seller. RTP needs the money to reduce it's debt load. CLD is clearly not overvalued as both BTU and MEE sport PEs in the 20s while CLD starts in the 7-8 range. If anything CLD is extremely undervalued. Gillette, Wyoming-based Cloud Peak raised about $459 million but almost all of the proceeds will go to Rio Tinto, which will retain a 48.3 percent stake in Cloud Peak. Rio Tinto is saddled with debt st...