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Eclectic background. Natural cynic. Ultra conservative. The 3 Ps. Expected outcome. Possibility x Probability . Expected return. Possibility x Probability x Payday. The 3 P's are difficult to quantify. Failing to attempt quantification is more dangerous than being somewhat wrong. A great guess... More
  • The Arguing Machine About The War On Coal 0 comments
    Dec 27, 2013 1:23 AM | about stocks: ACI, ANR, ARLP, BTU, CLD, CNXQ, OXF, RNO, WLB, WLT

    and the after-Christmas sales are raging. Let's look at the largest coal producers in America for bargains while 25,000+ miners (Hopefully) are still interested in making a living doing god's work in the mines.

    Could we, would we, should we assume that institutional ownership of the common shares of a coal company indicate a vote of confidence? Didn't Ben Graham say the stock market was both a voting machine and a weighing machine?

    CompanyTickerPrice $Millions
    $ Millions
    WALTER ENERGY INCWLT16.6057.59956.00%0
    Oxford Resource...OXF1.1630.8435.815%5
    Alliance Resource...ARLP75.9136.962,805.628%10
    Rhino Resource Partners...RNO11.1927.77310.730%8
    James River Coal CompanyJRCC1.3636.0649.032%12
    Westmoreland Coal...WLB15.6214.75230.444%6
    Arch Coal IncACI4.39212.28931.962%132
    Alpha Natural Resources...ANR6.54220.961,445.183%183
    Peabody Energy Corporati...BTU18.26269.834,927.185%229
    CONSOL Energy Inc.CNX37.51228.948,587.5100%229
    Cloud Peak Energy Inc.CLD17.6860.901,076.7102%62

    Looking down the list of top Coal Producers, we see that Arch (NYSE:ACI), Alpha (NYSE:ANR), Peabody (NYSE:BTU), Consol (NYSE:CNX), and Cloud (NYSE:CLD) top the list. From 62% for ACI to 102% for CLD. CLD really has the vote 102%. Oh Boy. All taken from the same online source though. Don't get me to lyin.

    Now if we assume that institutional ownership is a vote of confidence, would we not then have to also assume that short interest is a vote of non-confidence. Or in a different manner of speaking, institutions have positive notion that share prices represent a bargain and that the companies are underpriced, while short sales indicate that another group sees the company's stock as overpriced (while else would you short it?) Well there are other mechanical mathematical reasons, but humor me.

    So now the list of short sales as a percentage of outstanding.

    CompanyTickerPrice $Millions
    $ Millions
    Short %
    Rhino Resource Partners...RNO11.1927.77310.70.040.1%
    Oxford Resource...OXF1.1630.8435.80.240.8%
    Alliance Resource...ARLP75.9136.962,805.60.371.0%
    Westmoreland Coal...WLB15.6214.75230.40.221.5%
    Cloud Peak Energy Inc.CLD17.6860.901,076.71.903.1%
    CONSOL Energy Inc.CNX37.51228.948,587.511.064.8%
    Peabody Energy Corporati...BTU18.26269.834,927.119.697.3%
    James River Coal CompanyJRCC1.3636.0649.07.6421.2%
    Arch Coal IncACI4.39212.28931.947.1622.2%
    Alpha Natural Resources...ANR6.54220.961,445.159.6527.0%
    WALTER ENERGY INCWLT16.6057.59956.023.1540.2%

    Hmmmm well, well, well, now isn't this interesting. Both groups tend to agree on Cloud (CLD), Consol (CNX), and Peabody (BTU) with those 3 having a high Institutional Ownership and low percentage of shares sold short.

    In fact, this sort of reinforces my notion that the WAR on COAL is OVER, or they'd all have a high short ratio. Wouldn't they? Free money.

    Also both groups sort of agree on the Partnerships (Oxford, Alliance, Rhino) and Westmoreland. All have fairly low institutional sponsorship, with Westmoreland highest at 44%. This same group has little interest from the short sellers with the highest percentage under 5%.

    Walter Energy is another case of agreement. Walter has zero or near zero institutional ownership and the highest short interest 40%. James River is in a little different boat with low institutional interest 32% and high short interest 21%.

    But for the grand finale, let's take a look at Arch (ACI) and Alpha Natural Resources (ANR.) ACI, ANR have 62% and 83% Institutional Interest and simultaneously 22% and 27% short interest.

    Which brings me back to a story about the Lone Star Conference. All or most of the coaches assembled for a press conference and were serially asked at least one repeat question of many. "Coach - what do you think your win/loss ratio will be?" Texas said 9-1, and A&M said 9-1 and Arkansas said 8-2 and SMU said 9-1 and a few more and then I believe it was Grant Teaff at Baylor's turn and when they asked him, he said - "Gee after listening to the other guys, I'm not sure. By the way, has anyone told these guys they're all on each other's schedule?"

    So I say yes Professor Graham, the market is a voting machine in the short run and a weighing machine in the long run and by virtue of my brief juxtaposition here - at some point tween the two, it's arguably..... an arguing machine.

    Disclosure: I am long ACI.

    Additional disclosure: Yes, I'm long ACI in a huge way.

    Themes: War on Coal Over Stocks: ACI, ANR, ARLP, BTU, CLD, CNXQ, OXF, RNO, WLB, WLT
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