Alpha Natural Resources, Where's it Headed?
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Up, Down and Sideways, What's Going on in the Shares of Alpha?
Alpha Natural Resources, (NYSE: ANR), reported earnings earlier this week. The stock has been on quite a ride. On Wednesday's pre-market trading, the stock traded up as much as 5%, only to be down 10% at the intra-day low, for a swing of 15%. On Thursday, the stock is up 10% as I write this. Volatility is alive and well in the coal sector. Up 10%, Down 10%, Where's ANR headed?
A few weeks ago when Arch Coal, (NYSE: ACI) reported, "less bad" earnings the market cheered, sending the stock up as much as 40% in 2 days! Arch was heavily shorted going into the earnings, so part of the bounce was probably the shorts covering. From an intra-day high of $7.76, Arch shares closed at $7.0.
I posted an article early Wednesday suggesting that ANR might go up IF investors believed that post earnings all the bad news was out, i.e. 2nd quarter earnings marked a low in coal market fundamentals. The analyst community remains decidedly mixed on the topic and yesterday's wild trading on very heavy volume offered little guidance. Several price targets got slashed from the high-teens and low $20's to $8-$12 per share.
I hate to Say it, But ANR Might Only be for, "Long-term Investors"
Foolish investors will recognize the words, "for long-term investors." I hate to say it, but Alpha is an attractive investment under $7 per share for long-term investors. Those words are hard to hear as so many of us are not long-term holders these days, especially in the coal sector. Perhaps certain highly volatile sectors will always be dominated by traders. For Foolish investors looking for specific trading advice, I'm NOT your man.
Personally, I'm invested in the Jan-2013 Call options of Alpha, Consol Energy, (NYSE: CNX) and Walter Energy. January, 2013 may not sound like a long-term time frame, but I will roll the options forward if warranted. Consol could really pop if/when natural gas prices rebound to $4 per MCF. Although historically a coal company, Consol acquired a significant position in the Marcellus and Utica shale plays. Since then, those assets dipped considerably but have recently bounced back, albeit still under-appreciated by the market.
I've written a lot about Walter. Suffice it to say that I love it in the mid-$30's, a range that it appears to be exiting. Walter will be among the first to benefit from a rebound in premium hard coking coal, not expected before the first quarter of 2013. This year's 4th quarter may mark a bottom in coking coal prices at $200 per metric tonne, plus or minus $10. I believe WLT is a prime take out candidate as well.
Back to Alpha and where it's headed. It's headed higher, but it will not be a straight shot up. ANR stock traded 35 million shares on Wednesday and as I write this on Thursday the volume is running at more than twice the daily average. I believe this is a good sign. Shorts no longer have a near-term catalyst like they did leading up to earnings. No significant news is expected from the company, thermal coal prices have probably bottomed and ANR still has $1.6 billion of liquidity including $500 million in cash and marketable securities.
The bottom line is that Alpha has the staying power to comfortably make it through this severe coal market correction. Emerging on the other side it will be lean, mean and ready to go. Alpha is taking all the right steps, focusing on exports, cutting overhead and cap-ex, closing higher cost mines and moving aggressively towards coking coal. While it may take until 2014 for Alpha's earnings to bounce back strongly, investors will make the plunge long before that. One thing is abundantly clear, coal stocks like ANR can move A LOT in just a few days.
Longer-term investors should begin to accumulate the shares of ANR if they're not already holders. ANR is headed higher, it's just a question of time. Please do your own research on this high risk / high return potential stock.
MockingJay2011 owns shares of Alpha Natural Resources and CONSOL Energy. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
