Coal - A "Falling Knife" or a Buying Opportunity?
What many investors call a price correction in the commodities market has taken a toll recently, especially in the energy sector, but the gains of some of these commodities remain above 30% year-to-date. Consider December Central Appalachian Coal future contracts at the NYMEX, which have tumbled about 32% month-to-date after hitting a record high of $143 per metric ton on July 1. Although coal future contracts are off its highs, gains for the commodity remain above 60% year-to-date.
Peabody Energy , a leading coal producer, reported record earnings on Wednesday with net income more than doubling for the second quarter. "The fundamentals are as strong as they were two, three, four weeks ago," said Gregory Boyce, Chairman and CEO of Peabody Energy, during an interview on the Closing Bell. "We have as much demand right now as we've had for the last three or four months." The price of Peabody Energy's stock has fallen 28% this month. However, the company's shares are up nearly 17% year-to-date. Mr. Boyce attributed the recent pull-back in commodity prices to the "hedge money moving in and out in the last couple weeks" while mentioning that he is still very optimistic about the outlook for the coal industry.
Companies such as James River Coal , Patriot Coal, and Alpha Natural Resources have seen their shares more than double this year. Look to today's earnings report from Arch Coal for clues as to whether coal has cooled or will steam right back.
Coal has been hit the hardest amongst the energy commodities. September Crude Oil contracts are down more than 10% this month alone, but up more than 35% YTD, following a record high of $147.27 per barrel on July 11. In addition, Natural Gas contracts for August deliver are down nearly 31% in July, but are up approximately 17% year-to-date, and the price of September Heating Oil are also down 7% for the month, but up more than 42% year-to-date.
Withing the S&P 500 Energy Sector, some of the companies that have weathered the 16% pull back in crude oil from its record high are: