Thursday morning, you’d have thought the world was ending as U.S. gross domestic product data for the third quarter was far worse than most forecasts, coming in at just 2.0% versus 2.6% expected.
Source: Bloomberg
Add in the inflationary pressures we’ve been discussing — like natural gas up 29% since we covered it here back in August — and you get…
That was all the buzz in morning headlines. But by the afternoon, the financial media had a brand-new story to trot out…
That’s right, gone were the worries of ’70s style stagflation, as Facebook’s name change to Meta clearly points the global economy toward a shiny new future!
So I turned my attention elsewhere, to a bad third-quarter 2021 coal earnings call…
Moving on from the GDP discussion wasn’t entirely unjustified from one perspective, however.
Those quarterly releases are a lagging indicator. They tell you what the economy was in the third quarter, not what it is now.
However, other data points, like Friday’s University of Michigan consumer sentiment numbers, are leading indicators. The more confident people are, the more they spend. The more people spend, the higher prices go… and higher prices means more inflation.
That’s all important information to know as we head into the holiday season.
As such, I’m keeping an eye on that one and will be sure to include it in my weekly wrap-up.
A Bad Coal Earnings Coal Forced This Move
But for our deep dive, I want to talk about last week’s free trade on Peabody Energy Corp. (NYSE: BTU).
BTU reported earnings, and I’m sad to say that the second third-quarter coal earnings call I’ve listened to this week was nowhere near as exciting as the first.
First off, the press release was almost completely devoid of any useful information… Well, other than that they missed both revenue and earnings targets.
But worse, on the call, they wouldn’t say ANYTHING about 2022 other than that they had most of their tons committed.
When asked directly about the price of their Powder River Basin tons, they responded “we don’t talk about ongoing negotiations.” Curious, considering they said just before that they were almost sold out.
They did divulge that they contracted “a lot of tons” in August and September. Well, here’s what the market looked like then.
Source: Argus Media
Unless they contracted it all on that last day — which they didn’t — BTU is clearly missing out on the region’s record-high price spike. “August and September” indicates a range of $12.80 to $18 per ton versus current spot prices in the mid-$20 range.
That’s not good. If I had to guess, Peabody’s weighted average price is probably somewhere in the $14 range… not quite as buzzy as Arch Resources Inc. (NYSE: ARCH)’s $16.
It’s not to say there weren’t some positive aspects to an overall bad third-quarter 2021 coal earnings call, but their reluctance to discuss anything at length can only be described as… suspicious.
They’ll still probably clear over $2 billion in EBITDA next year, inclusive of their other operations in the U.S. and Australia. And metallurgical coal sales in particular should come in around 7 million tons total at roughly a $120 per ton margin, so all is not lost.
But price action Thursday was horrendous, and it completely shattered its one-month momentum.
Source: Bloomberg
Because of that, I’m pulling it off the watchlist completely. No meaningful guidance and no meaningful momentum says the best thing to do is sell and move on. The others on our watchlist — ARCH especially — are in much stronger positions in the near term.
If you followed my recommendation and bought a little at a time — a tenth or less of any intended stake — on down days, that equates to between a quarter- and a half-position at an average around $13.30.
I don’t like losing, but this timing clearly stunk.
Winter is still coming, though, so I’ll keep an eye on BTU to see if it hits its 50% retracement at $11.22. If it does, perhaps I will re-examine it then.
But until that time, somebody out there go tell Peabody management it’s OK to find something good to say, put it in the damn press release and emphasize it during your bad third-quarter 2021 coal earnings call. Having committed but as-yet-unpriced seaborne metallurgical and thermal coal is a good thing. Try getting excited about it next time, as it has a much better effect on stock prices!
OK, rant over… I will catch you all later for the wrap-up, but right now it’s time for a bourbon…
All the best,
Matt Warder
Fortune Research
P.S. There’s a stock market quirk New Money Crew Head Trader Lance Ippolito is calling a “Blockbuster Breakout Date.”
And these dates are only tied to a certain group of stocks in an explosive part of the Health Care sector.
That’s probably why most people don’t think to trade them…
But the small band of traders who’ve been in on these “Blockbuster dates” beside Lance have already had the chance to cash in on some powerful winners…
I’m talking about gains like 115% on TEVA… 175% on BHC… and even 210% on CRMD!
