Oil in the US is north of $93/bbl and natural gas is north of $3.40. hard to see how BP doesn't make a pile of money at these prices. However, I took a big position when BP dropped to $40 a share. And, so far, it has not done as well as I thought. Still, I believe that $50 is not too far off.
Really? With earnings less than 1.50? You are postulating a P/E of 26 for a mature company like this in a slow economy? I think not
I bought this back in July when it dipped below $55. It is now time to sell. I have bought and sold this for some time. It is very erractic. It will dip again. That will time to buy.
I have been pretty negative on ARLP after the election. But, I am reading a few things that are making me reconsider. Natural Gas prices are now up over $3.50/MMBTU. Furthermore, the number of active rigs continues to drop. Basically, the current price of natural gas doesn't support enough drilling to keep the price low.
So, what does this mean? At $3.50/MMBTU, a coal of ton replacement will cost almost $90. This is quite a bit more than the current price of coal. Furthermore, it is likely that natural gas prices will go up. So, the economics continue to increase in the favor of coal.
Coal has obviously dropped after the election. For companies like ARLP, this makes sense. They are predominantly based in American and the EPA is going to continue the war on coal. But, it is a war on American coal. BTU is predominantly an international based company. The EPA's impact on them is going to be marginal. I, therefore, think the drop in BTU is irrational panic selling. I have been buying.
I really do not understand this comment. If the EPA makes it too costly to burn coal this isn't going to cause a shift to Illinois coal, rather it is going to cause a shift to gas.
I sold my ARLP position at $65 and bought back in when it dipped below $60. Here is my thinking:
Natural gas is the main displacer of coal in the US. about six months ago, natural gas was about $2.15/mm btu. Today, it has risen to $3.45. Appalachian coal is about $65/ton. Given 12,500 btu/ton this means that a ton will generate 25 million BTUs. Those, the raw cost is about $2.60/mm btu. However, add to this shipping and the coast of a scrubber and a baghouse and our cost for coal is probably in the $3 to $3.20 per million btu range. Thus, natural gas is now more than coal, but only slightly. The gas business is going to push hard for LNG plants to raise the price of gas because fracking is expensive and is difficult to maintain at current prices. Thus, I believe natural gas is going to rise and make coal more competitive.
However, the real problem with coal is political. The EPA is waging an effective war against coal by making it difficult for utilities to burn it. So, the future of coal is dependent upon who controls the EPA. If Romney wins, bet the house on coal. If Obama wins, not so much. So, right now I have a position, but not a huge one. If I think Romney wins, I go big into ARLP.
you are assuming rationality. If the government was rational it would let the market sort out what the best energy form we should use. The EPA has determined that coal is "dirty" and it is working on that assumption.
I have been a trader the last six months. When something gets low enough, I buy it. When it goes up a little I sell it. I like ABB under $16. I liked BP under $40. Even at $42, I like BP (it has been trashed by the market, somewhat deservedly, but the market over-reacts). I liked Joy under $54.
There is too much uncertainity to be a longterm investor. Europe looks like it is going to be in a long recession. Frankly, till the euro goes, I don't see Europe as attractive. In the US, we have a mountain of taxes & regulations coming. Till that is resolved, the US is going nowhere. So, I make small trades, write covered calls, and try to eek out a small profit.
I grew up in Michigan and worked early in my career in the auto factories (before I got my engineering degree). It was obvious that the UAW called the tune through strikes and manipulation of the work rules. All that extra cost got passed to the consumer. The big three were ripe for the japanese and the japanese took it to them. Truthfully, they have never recovered.
CAT saw this and when the UAW decided that they were going to run them like the big three, CAT shut down their plants before they would let it happen. Today, on international construction sites you see CAT but no other US company. Just recently the CAW decided they were going to run the Canadian operations and CAT shut them down rather than let that happen. And, now, they have smacked the UAW again. Good for them - they will survive.
I sold my ARLP today. I think this is a good exit price ($65). If I knew that Obama was going to loose I would stay in. But, as it is now, Obama's epa is killing coal. Sooner or later that hits ARLP bigtime.
yes, ARLP is probably the best in the industry. However, they have not truly side stepped the problem. ARLP is now under $60 and just a few months ago it was above $80.
I have started to unwind several positions. Europe is a mess. The US has 1.5% GDP growth, and no one has resolved the tax cliff coming. It is even possible that Obama wins and the war on business is cranked up. I am going to go about 50% in cash and wait. ABB is the weakest of the bunch so it goes first.
When Joy dropped below $55 today, I had to buy. I just think that under $55 this is a wonderful company. Low p/e, good profitability. Sooner or latter we will new production at mines and Joy will profit from it. If you think longer than a week, Joy at $55 is a good deal.
I work in the oil business and I can tell you that natural gas wells are being capped and marginal oil projects are going on hold. Big projects in which significant money has already been spent will be finished. But, not new ones. So, oil prices will correct because supply will go down. I think it will take about a year.