As Japan continues to deal with the nuclear crisis following the devastating earthquake and tsunami, coal stocks are getting a closer look than they have in perhaps years. While the S&P 500 may be having a choppy month, coal stocks have snapped back to life again in a big way, with the Market Vectors Coal ETF (KOL) outperforming the large-cap benchmark by a 5-to-1 margin in March.
Jeff Macke and I talked to technical strategist Ryan Detrick of Schaeffer's Investment Research, who points to the momentum of the KOL and the fact that it has taken out the January resistance, moved to a 2 1/2 year and is on trend to take out the all-time high of $58 from June 2008. And the performance of some of the individual coal producers is even more compelling, with names such as Massey (MEE), Patriot (PCX) and International Coal (ICO) up 20%, 30% and 40% respectively so far this year.
"When you look at coal stocks...look at the price action," Detrick says. "It's extremely strong, up near recent highs." And with some of the negative sentiment surrounding coal, he's noticing a lot of holds and buys on the group as a whole. "And when you have that strong price action, analysts have plenty of room to upgrade the shares...We're bullish overall, but coal is one of those interesting areas that, when you see upper-price action amid negativity and skepticism, that can really unwind to go higher."
Clearly, the aftermath of the Japan disaster has stoked interest in energy alternatives, but the fact remains that they are bit players at best in meeting the world's mega-appetite for megawatts. Additionally, the industrial side of the coal story is also kicking in, with strong demand for metallurgical and coking coal, which are used in steel-making and iron ore production. Not surprisingly, both Japan's rebuilding and China's growth come into play.
But with favorable fundamentals, solid technicals and an increasingly red-faced army of shorts, coal is definitely worth a look.
"We all want to be in the next bubble," Detrick says, "and that very well could be commodities -- maybe even specifically coal."
Send us an email with your comments and questions. Reach Jeff Macke and Matt Nesto at firstname.lastname@example.org.