The pummeling coal stocks have taken over the past year or so is quite remarkable. Peabody Energy (BTU) is down 54.78% since its April 4, 2011 high of $73.95. Alpha Natural Resources (ANR) is down 74.55% since its January 12, 2011 high of $68.05. Arch Coal (ACI), Patriot Coal (PCX), and James River Coal Company (JRCC) are down 66.77%, 75.31%, and 77.35% respectively since their 2011 highs.
At some point, coal stocks will reach a bottom. Each of us will have our own trigger for what signals a buy in these stocks. For some investors, it might be a price consolidation over an extended period of time. For others, it might be a quarter in which coal companies beat estimates across the board. Perhaps some investors will wait for the companies to finally increase future estimates. On the other hand, for those who don't want to wait for a clue about future earnings to come from analysts or the companies themselves, monitoring rail traffic is a helpful, relatively real-time clue about the state of coal demand.
According to the most recent "Weekly Rail Traffic Summary" from the American Association of Railroads (AAR), for the ten weeks ending March 10, 2012, coal traffic on rails in the United States was down 7.6% year-over-year. For the one week ending March 10, traffic was down 13.1% as compared to 2011. If you are more interested in looking at week-over-week data in attempting to find the bottom in coal, week-over-week data is also still in negative territory. In terms of carloads originated, the weeks ending March 3 and March 10 saw sequential declines of 0.49% and 3.05% respectively. Over the past five weeks alone, carloads originated for coal have declined 4.70% from 120,276 for the week ending February 4 to 114,625 for the week ending March 10.
Since the AAR receives reports from railroads handling roughly 95% of all U.S. and Canadian freight rail traffic, we can be fairly confident that this data is encompassing enough to use as a helpful indicator for our analysis on the coal industry. Whether you are a coal stocks investor looking to buy at the nadir of the industry's fundamentals or an investor waiting for a solid turnaround in demand before buying, keep an eye on rail traffic for coal going forward. It might help you determine whether the industry is bottoming before we find this out from the companies themselves.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: I am long ANR's CUSIP 02076XAC6