As Coal Prices Rise, So Do Coal Stocks
You can't help but be reminded of the Little Engine That Could when you chart the stock price of Massey Energy Co. of Richmond.
For the past 2 1/2 years, the stock has been chugging up a long steep hill, hauling a trainload of black carbon. All along the way you can imagine investors chanting, "I think I can, I think I can, I think I can -- make a lot of money in the coal business."
And they have. Massey Energy stock has climbed to $41 and change a share from about $10, earning a trainload of profits for its shareholders, most of which are big mutual funds. Its shares closed Friday at $39.98.
The coal industry is in its first up cycle in 20 years, a trend that has transformed coal as an investment.
In the past few months, two coal companies have gone public: Foundation Coal Holdings Inc. whose home office is in Linthicum Heights, near Baltimore-Washington International Airport, and Alpha Natural Resources Inc., based in the heart of coal country in Abingdon, Va.
Foundation, which some investors considered to be an overpriced IPO, is still trading about where it was when the company went public in December, but Alpha shares are up almost 40 percent after just two months of trading.
Generally, coal stocks are a straightforward proposition, "pretty much linked to the price of coal," said David M. Khani, the coal expert at Friedman, Billings Ramsey Group Inc.
The Arlington investment firm became a player in the resurgent industry after managing the private placement last year of a German company's $1.3 billion stake in Consol Energy Inc., the biggest coal deal ever.
In less than two years, the price of coal from the Eastern fields that start a couple of hundred miles south and west of Washington has climbed from a range of $25 to $28 a ton to $50 to $60 a ton.
Appalachia has became one of America's answers to OPEC. Coal has become a hot commodity while most people's attention was focused on the price of gasoline and the erratic futures market for crude oil.
Crude futures briefly topped $58 a barrel a week ago today, then fell five days in a row, demonstrating that the market has been hijacked by speculators whose whimsical trading bears little relation to long-term energy price trends.
Coal prices are more stable because most coal is sold under long-term contracts with electric-utility companies and steelmakers.