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In early October, the University of Denver held the first presidential debate of the general election campaign. President Obama and Governor Romney went head-to-head over several issues ranging from the economy to healthcare. The meeting between the two raised many questionable statements, which is often the case in politics, but one sentence placed a very unloved sector of the investing world back into focus.
During the debate, the Governor said, “I like coal.” Romney was discussing his plans for adding jobs and making America more fuel independent, but the statement gave a bump to the coal sector. Since the coal mention, the Market Vectors Coal ETF (NYSE:KOL), which contains major companies such as CONSOL Energy (NYSE:CNX), Joy Global (NASDAQ:JOY) and Yanzhou Coal Mining (NYSE:YZC), has surged more than 11 percent. Furthermore, several top miners have reported upbeat quarterly financial results.
Peabody Energy (NYSE:BTU), the largest domestic coal producer by volume, reported third quarter earnings of $42.9 million (16 cents per share). Excluding one-time items, earnings came in at 51 cents per share, easily topping the average estimate of 34 cents per share on Wall Street. Revenue of $2.06 billion also beat the estimates.
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Following the Peabody results, Arch Coal (NYSE:ACI) said its profit surged to $45.8 million (22 cents per share) in the third quarter, compared to only $8.9 million (4 cents per share) a year earlier. Excluding one-time items, earnings came in at 20 cents per share. By that measure, the company beat the mean analyst estimate for a loss of 15 cents per share. Revenue fell 9 percent to $1.09 billion, but still managed to beat the average analyst estimate of $1 billion.
Although the presidential debate started to fuel the discussion on coal in recent weeks, the latest round of financial results indicate that there are real bullish fundamentals at work. Additionally, higher natural gas prices are also creating a larger incentive for users to switch to coal as the energy of choice.
Gregory H. Boyce, Peabody Chairman and CEO, explains, “While the global coal environment remains challenged, there are indications that markets are stabilizing through U.S. gas-to-coal switching, higher European coal-fueled generation and increased China infrastructure spending.” In the final trading days of October, natural gas prices hit their highest level in 11 months.
Earlier this year, Bloomberg reported that Europe is burning coal at its fastest rate since 2006. Demand for the fuel increased 3.3 percent last year, while sales of natural gas suffered their steepest drop since 2009. Fundamental signs like this, along with technical analysis, led us to recommend the coal sector several months ago as an investment opportunity for our premium subscribers. If you would like to receive professional analysis on commodity investments and other ways to preserve your wealth, we invite you to try our premium service free for 14 days.
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