(By Rich Bieglmeier) If you are a coal investor, you might be wondering why your stock has been heating up as of late. Is it because the Farmers' Almanac says the winter will be bitter-cold and full of snow? Nope. Is it because global warming is about to be replaced with global cooling? Nope.
Your coal stock is a burning ember because Mitt Romney has moved to the lead in the presidential polls. Unlike President Obama and NJ Governor Chris Christie, nominee Romney is seen as friendly to the coal industry.
Since the October 3, 2012 presidential debate, Market Vectors Coal ETF (KOL) has gained 7.5%. In fact, in this week's money flow report, iStock sees multiple coal companies dotting the top of the accumulation board.
Perhaps, the hottest of them all is Alpha Natural Resources, Inc. (ANR). Since the first debate, ANR is up an amazing 34.6%. Last week, Wall Street shoveled nearly $74.5 million – 4.3% of market cap – into their portfolios. Investors snapped up almost 38 million shares to kick off this week. If your long coal, you are hoping Mitt dominates Tuesday night's debate, again. If you are short the industry, c'mon Obama – light him up!
Based on Alpha Natural's charts, things could get a lot greener for the industrial metals & minerals company. Volume has been swelling since August in advance of the stock price rising. If the price can get to the better side of the two-time resistance, closing price of $8.55, then ANTR can smoke up the chart to $12.
Bypassing resistance could be a catalyst for short covering as 26.40% of the float (stock available for trading) is sold short. You can bet those betting against Alpha Resources know about the free space the stock has between $8.50ish and $12.
Because of super-duper low natural gas prices and stringent, costly EPS regulations, Wall Street values coal stocks at bargain bin prices. Alpha Resources trades for 22 cents for every dollar per share in revenue and at a fraction of its $23.04 book value.
For the last five years, the average price-to-book (P/B) has been 2.5 times book value. Today, ANR's P/B is 0.37. Meanwhile, the average five-year price-to-sales ratio of 1.21 is 5.5 times higher than the 0.22 the stock is valued at today. By most metrics, the coal company is valued at or near all-time lows.
Low valuations could persist for a while. As we mentioned up top, a few factors, plus soft economic conditions are working against coal prices. Recently, it cost more to mine the stuff than it is worth. It's tough to make money that way.
A Romney win in debate number two and on November 6th would surely be a big boost for the industry and Alpha Natural Resources, Inc. (ANR); however, for the stock to get past a short-covering induced $12, a cold winter, rising natural gas prices, and improving global economic conditions could be necessary.