For over past two years, we’ve watched as low natural gas prices have destroyed the shares of both coal and natural gas suppliers. St. Louis based Arch Coal (ACI) traded near $37 in April of 2011. Today it is below $6. During the same period, Peabody Energy (BTU) has fallen from $73 to $21. These are well positioned, strong companies being gutted by a combination of commodity price instability and an unfavorable political environment. I booked a nice gain in both companies as they ramped into election day, but promptly took profits before November 2. Now both have fallen back to where they were before Romney-mania.
You see, with very low natural gas prices, electric companies use natural gas to generate electricity instead of coal. Now natural gas may be bottoming (see here) (and here). Arch and Peabody will both benefit greatly from higher natural gas prices. Also keep and eye on the much hated Chesepeake Energy (CHK) and Excelon (EXC) names. T Boone Pickens own Clean Energy Fuels Corp. (CLNE) also correlates well with natural gas. Pure play nat gas trades include the GAZ and UNG ETFs.
This thesis is in it’s early stages and will take time to develop, For instance, is Excelon bear flagging on the weekly chart, or has it put in a bottom? Time will tell. These names are so depressed, I can wait for confirmation and still make a healthy profit. I’ve seen similar mentions from The Fly over at IBankCoin.
In other news, Beazer Homes continues to drift higher since my buy last week. I think it can reach $18.50 short term. Hudson City Bank Corp is holding up well today but definitely feels the resistance at $8.75. If/when it breaks through, the move could be big.
Disclosure: Long BZH and HCBK
You may lose money if you purchase any stocks mentioned in this post.