The average coal mining stock, as represented by the Market Vectors® Coal ETF (NYSEARCA:KOL), is flat YTD after a crippling 33% loss in 2011. The group has been hammered over falling demand due to both the weak global economy as well as competition from cheap natural gas and renewable fuels as a source fuel for electricity generation by utilities. However, the group is cyclical, and as counter-intuitive as it may seem, often the best time to invest in such groups is on a contrarian basis. In other words, as bad as the news is, much of that is most likely baked into the prices of coal mining stocks, and the risk given the recent steep fall in the group may be to the upside if any of the negatives cited above reverse themselves, even to a measured degree.
In this article, via an analysis based on the latest available Q4 institutional 13-F filings, we identify the coal mining companies that are being accumulated and those being distributed by the world's largest fund managers, managing between $50 billion and over $700 billion in 13-F assets. Taken together these mega fund managers control over 35% of the assets invested in the U.S. equity markets, but number just over 30 out of the tens of thousands of funds that invest in the U.S. equity markets. Also, taken together, they are bearish on the group, cutting $1.17 billion in Q4 from their $15.28 billion prior quarter position (for more general information on these mega funds, please look at the end of the article).
The following are coal mining companies that these mega fund managers are most bullish about, and that also have a high dividend yield compared to their peers (see Table):
Natural Resource Partners LP (NRP): NRP is a master limited partnership engaged in the owning, managing and leasing of coal properties in Appalachia, the Illinois Basin, and the Northern Powder River Basin regions of the United States. Mega funds together added a net $13 million in Q4 to their $107 million prior quarter position in the company, and taken together mega funds hold 4.7% of the outstanding shares. The top buyer was JPMorgan Chase & Co., with $1.3 trillion in assets under management, including over $217 billion in 13-F assets ($5 million), and the top holders were Bank of America, with $169 billion in 13-F assets ($34 million) and JPMorgan Chase & Co. ($31 million).
NRP, with a dividend yield of 9.1%, is among the highest dividend yielding companies not just in the coal mining group, but also compared to other high dividend yield group such as utilities and REITs. In its latest Q4, reported in mid-February, NRP beat analyst revenue and earnings estimates; its shares, as a result, have flat-lined since the report compared to a near 15% drop in the average coal stock during that period. Its shares trade at a current 12.1 P/E on a TTM (trailing-twelve-month) basis and 4.1 P/B compared to averages of 8.2 and 1.2 for its peers in the coal mining group.
Arch Coal Inc. (ACI): ACI is engaged in the production of steam and metallurgical coal from surface and underground mines. Mega funds together added a net $32 million in Q4 to their $639 million prior quarter position in the company, and taken together mega funds hold 30.9% of the outstanding shares. The top buyer was mega fund T Rowe Price Associates, with $288 billion in 13-F assets ($21 million), also the top holder at $254 million.
ACI fundamentals have been disappointing lately, with the company missing analyst earnings estimates three quarters in a row, and also earnings falling year-over-year for the last three quarters. The stock has dropped off significantly, down 27% YTD on top of a near 60% drop in 2011. Its shares trade at a current 9.5 P/E on a TTM basis and 0.6 P/B compared to averages of 8.2 and 1.2 for its peers in the coal mining group, while earnings are projected to fall from $1.07 in 2011 to 78c in 2013. Also, it yields a high 4.4% annual dividend yield compared to the 2.7% average for its peers in the coal mining group.
The following are some additional coal mining stocks that mega funds bought in Q4 (see Table):
- Consol Energy Inc. (CNX), a producer of bituminous coal and coal-bed methane gas, primarily in the northern and central Appalachian and Illinois basins, in which mega funds together added a net $61 million in Q4 to its $3.70 billion prior quarter position;
- Alpha Natural Resources (ANR), engaged in the production, sale, and processing of coal from mines and preparation plants in VA, WV, KY and PA, in which mega funds together added a net $40 million in Q4 to its $196 million prior quarter position; and
- Suncoke Energy Inc. (SXC), the largest independent producer of high-quality metallurgical coke in North America, in which mega funds together added a net $14 million in Q4 to its $74 million prior quarter position.
Besides these, mega funds based on their Q4 trading activity indicated that they are bearish on the following coal mining stocks (see Table):
- Teck Resources Ltd. (TCK), a Canadian miner of coal, copper, zinc, molybdenum, gold and lead, mainly in Canada, the U.S., Chile and Peru, in which mega funds together cut a net $442 million in Q4 from their $2.38 billion prior quarter position in the company;
- Peabody Energy Corp. (BTU), engaged in coal production and sale through 28 operations in the U.S. and Australia, in which mega funds together cut a net $422 million in Q4 from their $3.17 billion prior quarter position in the company;
- Walter Energy Inc. (WLT), a producer of hard coking coal from underground mines for by the steel industry, in which mega funds together cut a net $229 million in Q4 from their $1.53 billion prior quarter position in the company;
- BHP Billiton Ltd ADR (BHP), an Australian company engaged in the mining of base metals, iron ore, oil, gas, diamonds, and coal, in which mega funds together cut a net $121 million in Q4 from their $1.68 billion prior quarter position in the company;
- James River Coal Co. (JRCC) is engaged in the exploration and production of steam, bituminous and industrial-grade coal in Kentucky and Indiana, in which mega funds together cut a net $24 million in Q4 from their $80 million prior quarter position in the company;
- Cloud Peak Energy Inc. (CLD), a producer of coal in the Powder River basin through three wholly-owned surface coal mines in WY and MT, in which mega funds together cut a net $22 million in Q4 from their $357 million prior quarter position in the company; and
- Patriot Coal Corp. (PCX), a leading coal exploration and production company in the Eastern United States, with 14 active mining operations in Appalachia and the Illinois Basin, in which mega funds together cut a net $11 million in Q4 from their $128 million prior quarter position in the company.
Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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