Coal Is a Bargain for the Patient

by Sam Collins | March 20, 2012 2:30 am

Yesterday the focus of investors’ attention was on the newly declared dividend at Apple[1] (NASDAQ:AAPL[2]), helped by the highest level of homebuilders’ confidence in five years[3] and another drive higher by the financial stocks.

At the close, the Dow Industrials had gained 7 points at 13,239, the S&P 500 rose 6 points to 1,410, and the Nasdaq gained 23 to close at 3,078. Volume on the NYSE retreated to 721 million shares compared to the burst of volume on Friday due to options’ closing day. Nasdaq traded 403 million shares. Advancers were ahead of decliners on both exchanges by about 1.7-to-1.

As one technician put it, “The market seems to be on autopilot.” In other words, the technical action remains bullish buoyed by a string of breakouts and accompanied by strong breadth and renewed buying in financial and
transportation stocks.

The S&P 500 broke to another multiyear high yesterday and will probably keep slugging along unless the upper support line at 1,400 is penetrated on a reversal. Traders should use that line as a stop-loss for any index-related short-term trades. A serious caution flag would fly if the 500 broke the bottom of the support zone at 1,375 to 1,400. I summarized the support and target areas for the various markets on Thursday[4] and Friday[5], and I refer you to them for guidance.

Looking for Bargains

With Brent Crude Oil pushing $125 a barrel and gasoline prices rising each day, other sources of energy are again being considered. In this country, coal has fallen to less than 40% of the overall sources of power generation after being the main source for years.

Now with natural gas so cheap, many power plants are converting to that fuel. But that’s not the case worldwide. In fact, the U.S. Department of Energy expects global demand for coal to climb to 50% by 2035. That may seem a long way off, but the point is that total demand for coal isn’t shrinking. Thus, the currently ignored coal producers are probably bargains now.

Click to Enlarge
The Market Vectors Coal ETF (NYSE:KOL[6]) contains stocks like Peabody Energy (NYSE:BTU[7]) and Consol Energy (NYSE:CNX[8]), which owns its own port and thus ships coal with lower costs. The ETF has fallen from over $50 last April to the low $30s — a bargain. Note the stochastic buy and the recent pickup in accumulation. For those willing to wait, this ETF is one of the ignored bargains.

We’ll look at another undervalued sector tomorrow.

  1. newly declared dividend at Apple:
  2. AAPL:
  3. homebuilders’ confidence in five years:
  4. Thursday:
  5. Friday:
  6. KOL:
  7. BTU:
  8. CNX:

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