The 3 Week Diet System

Wednesday, May 13, 2015

Commodities Today: Coal And Solar Companies Under Pressure, Big Buyback Announced

May 13:


  • Coal companies are under investor scrutiny as more names file for bankruptcy or default on loans.
  • AES announced a 60 million share secondary offering and that 20 million of those shares will be repurchased by the company.
  • Investors did not like VSLR's quarterly results because costs are rising too quickly, even as the company grows revenues at a rapid pace.
In our experience investing in various industries during different types of markets, the one thing that has always stood out to us is that true bear markets take forever to find a bottom. This is especially true when the bear market for a particular industry or sector occurs within a bull market for the general stock market. This is because investors are more likely to speculate and attempt to catch a falling knife, or knives, when they have made easy money speculating elsewhere (and investors who have been around the block know that it is easy to show gains during a bull market).
This seems to be what has plagued the coal market, and one could even argue that it is taking place in the oil and natural gas space right now. Speculators move in during a downturn trying to call a bottom and fund their trading with easy winnings from elsewhere. Well it does seem that the coal market has begun to work its way through the weak pricing environment and has been taking a heavy toll on the industry and its weaker members.

Chart of the Day:

It will be interesting to see whether the winning streak can continue today in WTI Crude. Inventory numbers come out at 10:30 a.m. and a big jump could halt this latest move higher quickly.
Source: CNBC
Commodity prices are as follows (at time of submission):
  • Gold: $1,196.90/ounce, up by $4.50/ounce
  • Silver: $16.775/ounce, up by $0.249/ounce
  • Oil: $61.37/barrel, up by $0.62/barrel
  • RBOB Gas: $2.047/gallon, up by $0.0.0077/gallon
  • Natural Gas: $2.906/MMbtu, up by $0.009/MMbtu
  • Copper: $2.928/pound, down by $0.0035/pound
  • Platinum: $1,138.00/ounce, up by $5.00/ounce

More Trouble For Coal

It appears that the coal industry is finally seeing the kind of stress required to reach a bottom, but the only question on investors' minds is whether their coal company will be the next one to file bankruptcy or not. We have already seen James River Coal, Patriot Coal and Xinergy file for bankruptcy protection, and now Patriot Coal announced that it has decided to file for bankruptcy again as it seeks to find a buyer for its assets. Add in the companies which have defaulted on their debt in recent months, including the technical default from Alpha Natural Resources (NYSE:ANR), and the landscape becomes even bleaker. Investors have waited years to see the smaller, weaker players forced out of the industry and with some of the big coal companies now under pressure we could see the necessary changes required to bring the market's supply and demand back into alignment.
Arch Coal (NYSE:ACI) and Walter Energy (NYSE:WLT) are two names that many perceive as the next likely to make the headlines. Both have had issues and are in the same boat as Alpha Natural Resources because the companies have large debt loads and relatively higher production costs than the best coal companies.
It is tough to be a fan of any coal company right now, or even call one the best, as even names like Peabody Energy (NYSE:BTU) have been beaten up during this downturn. Just like its weaker peers, Peabody Energy is trading very near its 52-week lows and is a sub-$5/share stock. What has benefited Peabody during this downturn is their low cost production in Australia which has not only helped with the lower selling prices due to its lower cost to produce when compared to coal in the US but also because of its lower shipping costs to consumers in Asia, such as China.
We are still not quite ready to call a bottom in coal as we still think that it has to get worse before it can get better. A few more of the higher cost producers here in the US need to be forced out before investors can begin to think about buying the bottom and the longer that natural gas prices can stay low, the faster this will all play out.

AES Announces Secondary & Buyback

Shares in AES Corporation (NYSE:AES) fell in after hours trading following news from the company that a secondary offering of 60 million shares was being launched. China Investment Corporation is behind the sale of the 60 million shares, via a controlled entity called Terrific Investment Corporation, and AES Corporation will not receive any of the proceeds from the sale. While the 60 million share sale is bad news on the one hand, the good news for investors is that AES has negotiated the right to buy 20 million of those shares from Terrific Investment Corporation at the same price that the underwriters get to purchase their shares, so only two-thirds of the total sale will ever hit the market.

Solar Company Misses, Provides Disappointing Guidance

Vivent Solar (NYSE:VSLR) reported quarterly results last night that underwhelmed the market. While revenue grew over 170% to $9.5 million, which beat analysts' expectations of $8.1 million, the company reported a loss of $0.57/share on an adjusted basis. Wall Street had expected a loss of $0.38/share. To make matters worse, Vivent said that it expects revenue in the second quarter to come in between $14 million and $15 million, guidance which falls well short of the $17.1 million that analysts had projected.
Shares in the residential solar installation company were down over 8% in after hours trading as investors reacted to the company's costs and operating expenses growing faster than expected. As Vivent ramps up, one would like to see costs level out but right now the company appears to have little control over them.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.


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