Coal is Just Amazing

Earlier this month, during a period the dollar rallied a whopping 2%
and we were told "the strong dollar is coming!" and all commodities
were selling off. In response I wrote in this piece [May 1: Walter Industries - the Most Fascinating Company]

I
am trying to hand you a gift here, so that you make enough money so
that EVERY reader can invest in my mutual fund when we launch in 2009
(right?) - remember, coal is going to be next year's fertilizer... with
CNBC anchors aghast at coal and wondering "where did this all come
action come from, I thought the bubble ended last year with that stupid
potash!". I'm telling you now, a year ahead of time. I'm using Alpha Natural Resources (ANR) and Massey Energy (MEE) more specific for the metallurgical coal but any coal name has some exposure. [Apr 8: Changing Coal Allocation - Peabody Energy Out - Alpha Natural Resources In] I did a full analysis in that entry comparing the 2 names and potential profits/upside.And....Missed
fertilizer? Get coal. So you can tell your friends next year you were
there first. Come back in 1 year, book some profits, send check to my
fund and we are all happy. In the meantime, you can sort of laugh
quietly to self when CNBC tells you it's time to get out because the
dollar will be going up 7% vs the Euro in the next 2 months.

As
I keep saying, metallurgical coal is about where fertilizer was 15
months ago - we have a long wave of earnings estimates upwards coming
in the year+ ahead, with the biggest pushes up in earnings coming in
about a year. Alpha Natural Resources (ANR) is up about 7% premarket as I check off a fabulous earnings report.... just getting started in a long and winding road up over the next year I believe.


I
wrote a piece on fertilizer in October 2007 about just how wrong these
analysts (who are supposed to be industry experts and just follow one
sector) were... when a no name like me could see the coming earnings
explosion [Oct 23: Analysts Still Doubting the Fertilizer Stocks]
- since then estimates for many of these companies have gone up 2-3x in
the out years. Replace the word fertilizer with metallurgical coal and
check back in 15 months; once again analysts are so... so... so...
wrong. And this creates opportunities for us, before CNBC jumps on the
bandwagon next Valentine's Day proclaiming the bubble that is coal.

As
for the thesis that coal was the next fertilizer - well it was a major
hit - but it appears it has come to fruition much earlier than I
anticipated. But anyone doing their homework ahead of time could see
that large moves were coming - while I wrote those 2 entries in May -
in April I was commenting about the huge contracts being
signed/discussed [April 8: Posco Agrees to 200% Coal Price Increase] and [April 8: ArcelorMittal Sees Metallurgical Coal Prices Rising 150-200%]
And this folks, is how by doing homework, you can (a) get in ahead of
the crowd and (b) have conviction to hold / buy more - when the stocks
are selling off and the talking heads are promising you the commodity
play is over due to the "strong dollar". (people always email me asking
"where" I get my ideas - here is a case example - just read,
investigate, read, read, read, think, and read more. Then proceed to
ignore almost everything coming from "pundits" aka used car salesmen
with nicer ties, and top 20 business school degrees.)

Walter Industries (WLT) +40% in 3 weeks