There’s still plenty of upside in this unlikely commodity rally
From Matt Badiali, Editor, Stansberry Resource Report:
Did you take our advice?
If so, congratulations… You’re sitting on huge gains today.
In August 2015, my colleague Brian Weepie wrote about the devastation that had struck the coal industry. He told Growth Stock Wire readers to buy coal producers once prices – which had fallen more than 90% from their 2011 peak – reversed their downtrend and started to move higher.
That’s what happened earlier this year. If you bought shares of the coal producers he named in that essay, you’re up triple digits right now. But if you missed out, it’s not too late for you to take advantage of this rally today…
You see, almost 50 coal miners have gone bankrupt since 2011. Nearly a dozen went broke since the start of 2015 alone, including five of the largest publicly traded coal miners in the U.S. Imagine if ExxonMobil (XOM), Chevron (CVX), BP (BP), and Shell (RDS) all had to file for Chapter 11 protection.
For those of us who have followed coal for years, seeing these companies fail was astonishing…
As you can see, Patriot Coal actually went bankrupt twice… the second coming less than three years after its first reorganization.
This isn’t supposed to happen. Today’s bankruptcy laws allow companies to restructure in bankruptcy. Restructuring is considered more beneficial to society than liquidation. It’s uncommon for a restructured company to return to bankruptcy again, especially as quickly as Patriot did. The scenario is negatively referred to in the bankruptcy world as “filing Chapter 22.” But Patriot couldn’t avoid it. Prices continued to fall. The second bankruptcy shows the severity of the downturn.
Murray Energy CEO Robert Murray warned us back in 2014 that things were getting ugly…
In the coal business, you already had your costs as low as you could possibly make them every day.
The coal business finally hit rock bottom. It could only go back up.
That’s what we’re seeing now.
In the U.S., coal is used primarily for electricity. When natural gas prices are low like they are now, producers shift to natural gas. But when coal prices are cheap, they produce more power from coal. And that’s what’s going on right now. As natural gas prices climb toward $3 per thousand cubic feet, power companies are switching to coal.
The price of Appalachian benchmark Big Sandy coal bottomed at $40.50 per ton in June. It’s up 1% since then. That might not look significant, but it’s the largest move higher since June 2015. And it was enough to send beaten-down coal stocks roaring higher.
The VanEck Vectors Coal Fund (KOL) – which holds a basket of 29 coal producers – is up roughly 125% since bottoming earlier this year. And as you can see in the table below, the gains have been even better for the companies Brian recommended putting on your watch list last August…
The good news is the rally in coal hasn’t extended to all the producers yet. You can ride this uptrend with “one click” through shares of KOL today.
P.S. In the October issue of the Stansberry Resource Report, out last night, I recommended a pair of coal stocks that could return as much as 30% over the next 12 to 18 months as the rally in coal continues. Be the first to get these names with a 100% risk-free trial to the Stansberry Resource Report. Get started here.