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Get Ready to Buy These Energy Stocks

By Brian Heyliger
Monday, October 13, 2008

You consume about 20 pounds of coal per day...
 
That's the average for each American. The majority of that coal generates electricity. And about half the electricity generated in the U.S. comes from coal... Demand for coal isn't going anywhere.
 
But judging by the past three months, you might think that's exactly what happened.
 
It's been a long time coming for coal. The global credit crunch first took down housing stocks... then mortgage stocks... then retail stocks... then bank stocks. Now, the selling has spread to the energy complex... particularly coal stocks.
 
From their respective peaks this summer, oil is down 38% and natural gas is down 50%. Coal is doing better than the rest... down just 19%. But you'd never know by looking at coal stocks. Take a look at how share prices of the largest U.S. coal producers have collapsed since July:
 

Name

Ticker

7/2/2008

10/9/2008

Drop

Patriot

PCX

$75.61

$14.42

-80.39%

Foundation

FCL

$89.51

$20.47

-77.13%

Massey

MEE

$92.01

21.88

-76.22%

James River

JRCC

$58.20

$15.96

-72.58%

Walter

WLT

$111.99

$32.70

-70.80%

CONSOL

CNX

$110.01

$33.10

-69.91%

Arch Coal

ACI

$74.93

$22.53

-69.93%

Peabody

BTU

$85.01

$29.58

-65.20%

 
Keep in mind... these aren't companies with warehouses full of clothes that won't sell. They don't own mortgage assets that can evaporate in a matter of hours. They just own millions and millions of tons of coal. They dig up the coal. Then they sell it. That's about it.
 
These companies aren't speculative microcaps. These are the largest players in the coal industry. And they are simply victims of the huge liquidation going on in the hedge-fund and mutual-fund world...
 
Up until July, coal producers – along with producers of oil, fertilizer, copper, and iron ore – have been one of 2008's most popular and profitable hedge-fund trades: long commodities. Billions of dollars rushed into the relatively small coal sector. This caused most coal stocks to double or even triple in value... and it made coal one of the best-performing sectors through June.
 
But as you can see from the table above, the tide has completely washed away. According to Bloomberg, hedge funds are turning in their worst performance in 19 years. Investors are furious... and they're demanding their money back. Funds have had to dump commodity stocks – along with other investments – to raise cash for investors. The companies above have all fallen more than 60% in just a few short months. It's insane.
 
And the insanity has led some coal insiders to open up their checkbooks. Here's the buying we've seen in the last three months:
 

Company

Ticker

3-Month Buys

Average Price

Natural Resource

NRP

$2.1M

$24.09

Patriot Coal

PCX

$1.6M

$51.15

Walter Industries

WLT

$1.4M

$40.55

Consol Energy

CNX

$61.1K

$61.14

 
This is what I call "cluster buying." When you have multiple insiders buying in the same sector, chances are they know something we don't. It's why cluster buys are one of the greatest inside indicators... and why I'm bullish on coal.
 
But I don't think it's time to pull the trigger yet... Volatility is near all-time highs. Entire sectors have dropped 33% in just a few days. Now's the time to put together a buy list for when things return to "normal." Once that happens, you should take a look at coal.
 
Good investing,
 
Brian




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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%