Out Fox The $treet

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. 

After another week of bearish natural gas reports, most coal stocks were hit by negative analyst reports. Even though a lot of the news suggests a more bullish environment for coal, the market isn't finding the stocks appealing. The quarterly coal report from the EIA and the weekly natural gas inventory report should remind investors that not only is coal still alive, but it could have a surprisingly strong future. Domestic focused producers in the Western U.S. and Illinois Basin will benefit the most, providing some upside potential for Cloud Peak Energy ( NYSE: CLD     ),  Arch Resources ( NYSE: ACI     ), and Alpha Natural Resources ( NYSE: ANR     ). Read the full article here . 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...

After a year when Natural Gas inventories hit record levels, it might surprise people to see that the weekly report is now showing inventory levels only 0.7% above the 5 year average. In fact, the important East market is 2.4% below that average. With weak industrial demand, its likely surprising to most that storage levels are now inline with normal trends. Alot of the burn down has been due to the gruesome weather especially the record snows in the East. Regardless, though the more normal inventory levels set us up for higher prices as demand returns. To us, the natural gas stocks still reflect a return to prices in the $6-7 range and therefore we are more bullish on coal. For electricity demand or thermal coal, we remain bullish on Cloud Peak Energy (CLD). A return to higher natural gas prices will push more utilities back to goal as a substitute fuel. Alpha Natural Resources (ANR) is another favorite, but we like it most for its coking coal used in making steel. Both will benefit ...

That might sound counter intuitive especially considering that the utility canceling the contract was just about all of the 2011 and 2012 production for the Decker Coal partnership. As I'm writing this, Cloud Peak Energy (CLD) is up 6% to a a new high of $16+. Stone Fox Capital was very bullish on this IPO even after it cratered into the $13s from a original expected range of $16-18. [Buy Cloud Peak Energy as it Trades in the Valley] This was mainly due to this expected contract cancellation with an eastern utility company. Of course on face value it seems bad that the only customer of this partnership would cancel services (ok its a buyout), but in reality in the commodities sector its all about the resources and not the contracts. In fact, the lack of a contract can be beneficial as prices continue to soar and your able to sell into the spot market. Coal might not have a big spot market, but places like China are cutting electricity use due to a lack of coal supplies. You tellin...

Joy Global (JOYG) has one of the more detailed earnings reports especially regarding end user demand for commodities like copper and coal that we favor as being in short supply because of the booming demand in China and now apparently India. The coal import demand from these 2 countries could be just staggering in the next few years. While copper could be in short supply in 2011 has industrialized countries return to stronger demand at the same time that China uses more and more. Everything points to higher commodity prices then the peak prices in 2008. See below for the outlook from JOYG. Market Outlook Demand for mined commodities continues to be dominated by strong imports from the emerging markets, and from China and India in particular, with improving but still weak fundamentals from the industrialized countries. For the past year, China has been the major source of increased demand for commodities as it deployed a more effective stimulus program and ...

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...

Cloud Peak Energy (CLD) is an IPO spin off from Rio Tinto (RTP) that has huge potential. By all accounts, the deal will be cheap as evidently RTP needs the cash. The deal is expected to price in the $16-18 range giving it a7 PE multiple. Very odd considering the PE multiples in the 20s that most coal producers trade at currently. CLD is completely focused on the Power River Basin (PRB) area in Wyoming and Montana. The surfice coal in the PRB is much easier to mine then the mountaintop mines in the East and especially in Central Appalachia. Also, the coal is 'cleaner' then the East because of lower sulfur amounts. Now honestly just about every other energy option is 'cleaner' then coal such as natural gas, solar, and wind. Unfortunately coal is the cheapest option and the US along with emerging economies like China and India are somewhat stuck using it so demand is expected to grow. Another issue with the Central Appalachia is that it has declining reserves and faces reg...