Walter Industries Is Smoking out Its Peers

Long-time readers will know I made a lot of outperformance in the coal space in late 2007 through mid 2008. While everyone was in oil, I was pounding the table in the stealth rally in coal. [Dec 6, 2007: Coal Stocks Quietly in a Bull Market]

One name that was a very strange combination was Walter Industries (WLT), which at the time was a combo 'housing/coal' stock (yes, I'm serious). [May 1, 2008: Walter Industries - the Most Fascinating Company] Now they've refocused the business just as a coal pure play - specifically metallurgical coal (for steel).

As the "reflation" trade crowd gets its head handed to them the past 3 weeks, I bring up this name because Thursday it is green, and it's been performing at a pace completely outside its peer group. I'm always looking for anomalies or outliers, which usually means "someone(s)" with a lot more access to information than the rest of us, knows something.

I'm not sure if this signifies some news specific to Walter coming or just a relative valuation trade, but seeing it green on multiple days when the rest of the coal group is down has me wondering if something is coming. Maybe someone is sniffin' around [Jul 18, 2008: Wilbur Ross Believes M&A Activity in Coal Will be Unprecedented in Next 12 Months]

Below is a 1 month comparison of performance of Walter versus some of the larger coal names

(click to enlarge)


[Jul 29, 2008: Walter Industries with Blowout Earnings]

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Comments

[Mark Mansfield:]

Without the short of news of which you are hoping for it is well possible that this stock could come crashing back to Earth next week. I would agree that the outperformance was very strange, but it did receive a few upgrades on Wednesday, was featured in a street.com technical take, and is an IBD top 100 stock. However if the reflation trade is indeed over, which the market is certainly beginning to suggest is the case, this stock will start to sink along with all commodities related plays. Don't forget during the last reflation trade stumble on 6/22 this stock dropped to below 30. Tread with caution on this one.

Jul 03 06:01 PM

[TraderMark:]

I agree with your points. Didn't say "jump in kids" - especially if reflation trade dies. What is strange is it was one of just a handful of "reflation" stocks up on multiple days last week.


On Jul 03 06:01 PM Mark Mansfield wrote:

> Without the short of news of which you are hoping for it is well
> possible that this stock could come crashing back to Earth next week.
> I would agree that the outperformance was very strange, but it did
> receive a few upgrades on Wednesday, was featured in a street.com
> technical take, and is an IBD top 100 stock. However if the reflation
> trade is indeed over, which the market is certainly beginning to
> suggest is the case, this stock will start to sink along with all
> commodities related plays. Don't forget during the last reflation
> trade stumble on 6/22 this stock dropped to below 30. Tread with
> caution on this one.

Jul 04 08:25 PM

[Mark Mansfield:]

I've shorted the stock, but I have to admit that hasn't been an easy trade. Probably should have jumped out on some of those trips to the 35s, but we'll see. While the green on Friday in a terrible market day is compelling, the volume was nothing impressive and the options haven't shown much activity at all. Without those "tells" it seems unlikely to me that a merger is around the corner. I guess we will see next week if this stock joins the rest to the downside or continues to defy the odds.

Jul 05 03:12 PM

[Mark Mansfield:]

Looks to be acting more "normal" today.

Jul 06 10:17 AM