- Coal stocks have become hot with the Russia-Ukraine war
- Peabody (BTU) has global operations to take advantage
- Ignore the solar leasing play and trade options
The war in Ukraine has made the energy sector hot. Nowhere is it hotter than in stocks previously left for dead like coal producer Peabody Energy’s (NYSE:BTU) stock.
Peabody was a $1/share stock in November. It opened for trade March 22 at about $24/share. That’s a market capitalization of $3.2 billion.
Earnings are helping drive the stock. Peabody earned $360 million, $3.22 per share, during 2021, on revenue of $3.3 billion. But Peabody is not a growth stock. The company raised slightly less coal in 2021 than in 2020, when it posted a $1.8 billion loss.
Coal, the most stable business around in your grandfather’s time, is now as much a meme as Gamestop (NYSE:GME).
The Short Term
Peabody is the world’s largest coal producer. It traces its history to 1883. Peabody was named after Francis S. Peabody, a 19th century political ally of the first Adlai Stevenson. The company took Chapter 11 bankruptcy in 2016 but returned to the NYSE in 2017. The company owns 17 mines and acts as a coal broker.
As prices rose and profits rolled in during 2021, Peabody claimed to have an eye on its future. It announced a joint venture called R3 Renewables to lease out its land for solar panels. But energy demand sent coal prices up and the war has sent them much higher.
As a fuel of last resort, however, coal prices are as volatile as coal dust. The price of Newcastle coal was below $100/ton last spring but was at $321/ton on March 21. At the start of the war it was as high as $418.
The Coal Trade
If you look at fundamentals, Peabody is still a cheap stock.
Last year’s earnings give it a price to earnings ratio of 7.4. Past performance, and the reality of climate change, help justify the low price. But when energy supplies tighten traders still turn to coal. This has made Peabody a hot stock in today’s market.
At the start of 2022, Peabody stock was selling at $10/share. It moved to near $20/share as earnings approached but was below $15 when the war started. Our Bret Kenwell says $20 is now a support level for the stock.
Coal’s low-grade status makes Peabody even hotter than oil stocks like Exxon Mobil (NYSE:XOM) when fear rules, as it has for the last few weeks. Making Peabody especially attractive are its global operations, Australian mines, and Asian markets. That makes it especially sensitive to price shifts, which have lately all been on the up side.
Analysts won’t help you here. They don’t respond to rapidly shifting prices. There are only three interested analysts at Tipranks and their average price target is near the stock’s current price.
The Bottom Line on BTU Stock
BTU stock is not a long-term play. It’s not even a medium-term play.
Peabody is a play for daily traders with itchy fingers ready to respond to war or peace.
For me, that means the best way to play BTU stock would be through its options. You get leverage when coal goes up, and limit your losses if peace breaks out.
Bulls might want to look at $25/share calls, although there’s even more action at $30. Bears are looking at puts anywhere from $18-20/share. The more educated might want to put together a straddle trade.
The longer this war goes on, the longer BTU stock will be worth trading. Peace could break out at any moment, however, grinding your dreams of avarice into dust. Options trades will keep you busy while you wait it out.
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.