Sector Watch: Coal Stocks

I’ve been getting hit with a few emails lately asking if coal is still a good buy…

Coal has been a hot topic this week and for 2008 in general. The commodity is up 50% for the year and recent predictions have coal prices going higher through 2010. One brokerage firm recently raised the price targets for several coal producing stocks. Although the “Watch List” I have created below will show some of these stocks are taking a break today, all of them are right at 52-week highs.

According to the “experts”, the demand for coal will far outstrip supply until at least 2010 so these stocks could continue higher. Two of the biggest risks that could affect coal and the demand for it would be rising shipping costs and a global economic slowdown. I recently mentioned the “Shipping Stocks” and shared my views on the subject of where I think those stocks are headed so that shouldn’t be an issue. A global economic slowdown? I doubt it.

Either way, approach these stocks like you would any others…do your homework. I have added some near-term out-of-the-money option quotes for those of you who requested I do so.

Arch Coal (ACI, $68.30, down $1.80). 52-week high of $71.81 hit on 6/3.
June 70 call (ACIFN, $2.60, down $1.10)
July 70 call (ACIGN, $5.10, down $1.10)

Massey Energy (MEE, $69.00, down $0.70). 52-week high of $71.95 hit on 6/3.
June 70 call (MEEFN, $3.30, down $0.60)
July 70 call (MEEGN, $6.00, down $0.20)

Patriot Coal (PCX, $122.17, up $2.35). The company which was spun-off from Peabody Energy hit a 52-week high of $126.00 on 6/3.
June 125 call (PCXFU, $7.10, up $0.50)
July 125 call (PCXGU, $12.10, up $1.60)

Peabody Energy (BTU, $75.28, down $2.11). 52-week high of $81.10 hit on 5/19.
June 80 call (BTUFP, $1.80, down $0.90)
July 80 call (BTUGP, $4.00, down $1.20)

Joy Global (JOYG, $84.49, up $1.32). 52-week high of $85.50 hit on 5/30.
June 85 call (JQYFQ, $2.68, up $0.38)
July 85 call (JQYGQ, $4.70, up $0.40)

There you go. Have fun with them!

Rick Rouse
Rick@OptionsMentoring.com

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