The disconnect didn't take until late in the year to unwind. It took 6 days. I find it funny, the idea that you can't find good values out there. You have to take some risk, but SXCP at $6 or whatever? Just stupid. I'd much rather have bought SXCP at $6 than TSLA at $250. Yet people couldn't give SXCP away and they are waiting in line to buy TSLA.
No sane person is short a stock that pays a 30% dividend, as you have to pay that dividend yourself. The short interest on SXCP is only 1%. The swings in SXCP have not been predictable. It may be that a fund is buying today. In general the end of the world was priced into the stock. It's dawning on people that the end of the world is not about to happen here. That SXC (the corporate parent, not the LP) is divesting it's coal assets is not hurting. Analysts have raised their earnings estimates for SXC for this year and next. Steel stocks also continues to be strong and analysts are raising earnings estimates for steel. It all makes SXCP look better and better.
SXCP is dependent on the success of the steel industry in the US. So what has X done since the first of the year? Well it's doubled. What has SXCP done? It's gone down slightly. There is a complete disconnect between the expectations for steel. Look at X, and the market is saying things are getting better. Look at SXCP and the market is saying bankruptcies in steel. SXCP should have participated in the move in steel so far this year. I suspect there is a huge rally to come, but it might not be until closer to year end when SXCP makes progress on paying down their debt and the dividends steadily arrive. Crazy. This is a high risk stock, no question. But we are more than compensated for the risk taken with the 33% dividend. I cannot think of a stock *ever* that has a dividend over 15% where analysts are predicting decent earnings for this year and next. 33%? If might be unprecedented, except during a market crash ala 2008.
Understand one important thing. SXCP is not a coal miner, they are a coal processor. If coal goes to 2 cents a ton it would benefit SXCP.
However old you are, coal will still be a major source of power and steel production during your lifetime. 70 years from now? That may change. But 70 years from now petroleum may also be gone. Just because something is deprecated doesn't mean it's not important. I'll make you a bet. In 5 years you'll make far more money in SXCP than you will in AAPL. Buy low, sell high. Nothing is higher than AAPL.
Coal is the new tobacco, the industry everyone loves to hate. But the recent data I saw showed estimated coal usage per year only dropping slighly by 2050. Economics always wins. Coal is just so much cheaper than anything else.
There is a phenomenon that has been growing the last few years. Volatility in small cap stocks around earnings time. The earnings today from TA were disappointing, and the stock deserved to be down 5%. But 13%? That's wacky. I saw a similar thing from Stage Stores (SSI) when they came up short on earnings a couple of weeks ago. The stock was down 20% on the day earnings were announced. In the past that would have been a 5% hit. Here is the thing. SSI is back up where it was before the earnings announcement on zero news. There is nothing wrong with TA. They are executing their plan just fine. Volatility in gas and diesel pricing is just part of the deal with them. But they are growing the business and making money as they do it. Overall they are just fine, and there is really no reason for the big hit today.
Two big pieces of news for the steel industry. First, steel imports are declining significantly. Then the Commerce Department has put big steel tariffs in place for steel imports. That, plus an economy that continues to chug along makes steel manufacturer bankruptcies unlikely, despite the tough environment. Bankruptcies in the steel industry is by far the biggest threat to SXCP. Barring that, the company should be able to churn out their ridiculously enormous dividend for quite some time. Analyst estimates for earnings will allow for pretty good coverage of the dividend this year and next. Then add in that SXCP is going to be paying down debt in the near term reducing the risk over time, and the value proposition here is amazing.
Because it's not technically a dividend. Just like a bank savings account pays interest, not a dividend, LPs pay a partnership distribution.
Though earlier they said there were going to increase the dividend this quarter, there is no point. The dividend certainly is providing no protection for the stock price. 45% dividend? I've been investing for 30 years and I've never seen anything like this. I kind of wish they had cut the dividend by maybe 10%. To make sure it's a little more sustainable if there are more problems for the steel industry next year. Overall their projections for next year are very bullish, with an expected increase in EBITDA. If that takes place, they should be able to cut the debt somewhat while still maintaining this crazy dividend.
Hopefully a year from now we'll be saying "Why didn't I mortgage the house and put every penny in SXCP".
Sentiment: Strong Buy
Yes but even at that time, Wall Street was skittish about investing. There were some table pounding bulls like Warren, but many on Wall Street were saying "It will get much worse before it gets better". But here we have a complete divergence of opinion.
Jeffry, there is an excellent analysis of SXCP's situation on Seeking Alpha. I tried to post it but Yahoo won't allow it. So search for Suncoke LP and Seeking Alpha and you'll find it. The author discusses the possibility of bankruptcies in the steel industry (for SXCP's customers, it's unlikely). The biggest thing he raises is about the MLP situation, but I believe that will not be an issue for 10 years at the worst.
As far as yield. Consider that SXCP's yield is double that of 5 year Puerto Rico bonds, and you *know* they are going to take a huge haircut. Certainly I've never even heard of a stock getting beaten down like this while they are *raising* dividends. The market is flat out saying the dividend is going to be cut by 50% or more. Yet analysts estimates are rising for next year. It's fear of how bad things could get, versus how bad they actually are that has the market spooked.
Frankly I think there is a fair chance that Tesla will be in bankruptcy within 5 years, but the market cannot get enough of that money losing stock.
Sentiment: Strong Buy
The new credit facility that SXCP just got is essentially at Prime for 4 years. Bank of America has little fear that they can pay that loan back, or the rate would have been much higher. Again, Wall Street professionals think that SXCP is fine, but the general public is terrified. Fascinating.
Here is the crazy, crazy thing. Over the last month or so, the analysts covering SXCP have *increased" their earnings estimates. Yet the stock continues to collapse. I've never seen anything like this where Wall Street and the company say one thing, but investors are saying 100% the opposite.
I think we'll have more clarity next month when SXCP provides their outlook and guidance for next year.