By Steven Orlowski
Stock markets around the globe are up significantly in the wake of the deal to avoid the Fiscal Cliff. Many stocks are benefiting, even those with seemingly indirect links to the U.S. and its fiscal woes. One Chinese stock is up more than 6%, but questions persist for the company.
Yanzhou Coal Mining (NYSE:YZC) is up significantly today, providing evidence that perhaps it has bottomed.
It appears that YZC established a support level at about $14.00 per share between July and November of 2012. With the action in the stock today it looks like it has broken above short-term resistance near $18.00 per share.
While it does look like it has turned a corner, I'll refrain from making an absolute call. The longer-term chart suggests there needs to be a bigger move higher to consider the stock to have begun a new bull phase.
On the three-year chart, YZC needs to get to approximately $20.00 per share to meet resistance. This means that the profits shareholders are enjoying today might not last.
Fundamentally, Yanzhou has things going both for and against it. The current yield is about 5.25%. Yanzhou has a track record of making dividend payments every year and has done so for almost a decade and a half. The dividend amount, however, has been inconsistent. Since 1999 the dividend has increased from $0.04 to $0.90, but it's been lowered several times along the way.
Its business is not restricted to China. It also has mining operations in resource-rich Australia. The company should do well as China continues to grow. The ongoing ascension of poor, rural Chinese to middle class status will undoubtedly keep coal demand high for years to come.
In the short term, we're concerned about that growth. China is in the midst of a hyper-analyzed slowdown, though it's still growing. The near-term impact of the slowdown on YZC has not been good. The stock has clearly been negatively affected and if the current environment persists, the stock price and/or the dividend amount could come down further.
Based on my research the consensus for the stock is "hold," which of course could be interpreted to mean "sell." But I wonder if the worst is now behind YZC. Look for those analyst ratings to improve as China’s economy strengthens.
I'll be keeping an eye on Yanzhou. I want to see that dividend secured. Once China can show consistent measurable improvements in its economy, I would expect to see YZC resume a reliable trend higher. The 6% bump today is nice, but as with the Fiscal Cliff deal, it could well be fleeting.