Out Fox The $treet

Friday was a wild day in the metallurgical (MET) coal sector as Patriot Coal (PCX), Walter Energy (WLT) , and Norfolk Southern (NSC) all made noteworthy announcements. With Patriot Coal and fellow met coal producer Alpha Natural Resources (ANR) both sinking more than 10%, one would assume that all of the announcements were negative. Summary of the announcements from Friday: Before the market opened, Patriot Coal put a major damper on the sector by announcing the closure of several high-cost met coal mines due to slumping demand for seaborne coal. During the day, Norfolk Southern announced the loading of the largest volume cargo in the history of Pier 6 at Lamberts Point. After the market closed, Walter Energy announced a reduction in 2012 production due to equipment and facility issues while announcing the market remains robust. (Walter still expects roughly 19% to 34% production growth for the year) Naturally the news for Patriot Coal is disastrous for the company. Yet another...

Back in July of last year, I did a series of articles about companies with relatively cheap valuations that were expecting the fastest earnings growth in 2012 (See 1, 2, 3, 4). These companies offered the potential for huge stock gains if earnings estimates were met. Unfortunately, just as I wrote those articles the global economy went into a tailspin due to the European debt crisis and stock prices collapsed along with the earnings estimates of the majority of those stocks Now as global stock markets appear ready to head upwards, it seemed like a good time to revisit this list. It is always a good idea to check the outcome of a previous concept. How did the stocks perform? Were earnings estimates met? What about the valuation now? Read full article on Seeking Alpha. Disclosure: Long CRZO, MTW, and TEX. Please review the disclaimer page for more details.

Last week we started a series on the companies with fastest growing earnings next year. The  first article  was written about Take Two Interactive ( TTWO ) that topped the list with earnings expected to grow by roughly 463%. The second fastest grower is Patriot Coal ( PCX ). While TTWO doesn't impress us as a stock with sustainable earnings momentum, PCX on the other hand has some growth initiatives combined with expiring legacy contracts that will provide much higher margins once rolled over. In fact, the two coal supply agreements that expire will add a whopping $150M in EBITDA by 2013. Please read the full article at SeekingAlpha.com.  Disclosure: Long ANR for client and personal accounts. This information should not be construed as investment. Please review the disclaimer page. 

That's the bad news. The good news is that 2011 targets remain intact and the all important met coal market remains strong. After the close last night, Massey Energy (MEE) reported that Q3 production was lower then expected and operating costs were higher then expected. Not exactly an investor friendly combination. Of course that has always been the risk of investing in MEE after the Upper Big Branch explosion in early April as Stone Fox highlighted in July [ Buy the Other Disaster Stock ]. Management focused on the UBB investigation combined with regulators being extra cautious is never a good combination. Hopefully that will change as the year ends and 2011 starts. Higher regulation has been a big issue in the US coal sector since the explosion. Short term that regulation just leads to higher costs and lower production impacting just about every company in the Appalachia region. See the Patriot Coal (PCX) news . Long term though it leads to higher prices because supplies will...

China is the largest user of coal and now they've become a major net importer in the last few years. Although China has embarked on several programs to focus on renewable energy sources such as solar and wind they will rely on coal fired electricity for a long time with some sources estimating that China will nearly double coal use by 2030. The coal industry in China is very fragmented. Many of the coal mines have been operated by small companies leading to very inefficient mines and a high injury rate with several tragic mine accidents. Hence, the government has embarked on a mine consolidation plan in order to move the majority of the mines into the hands of larger operators that will be more efficient and easier to regulate. The program will reduce the number of mine operators from 1,000 to 100 while also significantly shrinking the total number of mines. Mine Consolidator Puda Coal (PUDA) is one of the selected mine consolidators. It's virtually unknown by investors as they...